How to deal with the issue of board diversity has become quite the conundrum. After the killing of George Floyd, many companies enhanced and championed their policies and commitments to DEI. But recent changes to the legal and political landscape—there’s an understatement for you—have had repercussions. Consider, for example, the collective impact of the Fifth Circuit decision vacating the SEC’s order approving Nasdaq’s board diversity rules (see this PubCo post), the 2023 decision by SCOTUS effectively ending affirmative action based on race in higher education admissions (with political, if not yet legal, spillover into the corporate world), the new Administration’s executive orders intended to put the kibosh on DEI programs altogether (which have been, and are likely to continue to be, mired in litigation, see this Cooley Alert), along with the increasing volume of anti-DEI activism and political pressure, manifested in part in litigation and anti-DEI shareholder proposals. (And see this article in The Atlantic about the implications of the absence of consensus on the meaning of “DEI.”) As discussed in this new Cooley Alert, Board Diversity: Policy Updates and Considerations for Proxy Season, from our Capital Markets group, this fraught and shifting environment has compelled some proxy advisors and institutional investors to craft dramatically revised policies on board diversity that companies will need to consider this proxy season. As the Alert highlights, “[c]ompanies will need to make decisions about proxy statement disclosures amid ongoing uncertainty… while balancing competing stakeholder priorities.” Not to mention, to the extent that companies are faced with recalibrating their corporate commitments related to board diversity and DEI generally, obvious concerns with retaining authenticity and adhering to company values.
The Alert provides an “overview of updated board diversity voting policies of proxy advisory firms and key institutional investors and offer[s] guidance to companies as they review their board diversity disclosures and practices in the current environment.” Worth noting here is that, while some of the largest U.S. institutional investors may have muted or relaxed their policies on board composition and diversity, some of the larger non-U.S. institutional investors “have actually announced policy changes for 2025 that include more expansive or stringent diversity standards.” The Alert also offers some useful advice regarding actions companies should consider in light of the evolving context of board diversity. The Alert advises that “[c]ompanies and their boards should ensure that they are aligned in terms of risk tolerance with respect to their current practices, and that they describe lawful recruitment practices accurately in their proxy statements, governance documents and other public disclosures. Board dynamics, stakeholder expectations, federal government contractor status and other factors may inform a company’s ongoing assessment of risk in this area as events continue to unfold.”
Be sure to check out the new Alert!
