Results for: Nasdaq diversity
After climate, is enhanced diversity disclosure next?
It’s not just mandatory climate disclosure that’s on the agenda for Acting SEC Chair Allison Lee. Last week, as reported by Reuters, in remarks to a forum for securities industry professionals, she said that the SEC “should think more ‘creatively and broadly’ about tackling issues of race and gender diversity, including by potentially revisiting public companies’ disclosure requirements.” In the past, Lee has not hesitated to emphasize her concerns about the absence of prescriptive requirements in rulemakings that would have more certainly elicited disclosure regarding diversity. (See, for example, her statement regarding amendments to Reg S-K as well as her remarks to the Council of Institutional Investors, Diversity Matters, Disclosure Works, and the SEC Can Do More.) Now that she has directed Corp Fin to focus on climate disclosure, will diversity be next?
What role should the exchanges play in encouraging board diversity?
Board diversity and how (and whether) to try to achieve it is a topic that has certainly appeared on a lot of corporate governance agendas in the last few years. Institutional investors have applied pressure on corporations, shareholders have submitted precatory proposals for shareholder votes, investment banks have insisted on diverse boards as preconditions for taking companies public, and California and a number of other states have adopted legislation, whether it be a board diversity mandate, a soft target or simply a disclosure requirement. Most recently, Nasdaq filed with the SEC a proposal for new listing rules regarding board diversity and disclosure, adopting a comply-or-explain approach. According to Nasdaq’s President and CEO, Adena Friedman, “Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies….Our goal with this proposal is to provide a transparent framework for Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.” Interestingly, however, the NYSE has not followed suit. In fact, in an interview on Bloomberg TV in December, NYSE President Stacey Cunningham said, when asked about the Nasdaq proposal, that it was not something that they were considering adopting at the NYSE: “When we use exchange listing standards to require things like diversity profiles or others, we’re defining the investable universe…. We just don’t think we should be using our listing standards because that forces our views on investors and prevents them from being able to make the choices that they want to make and that they are making.” In contrast to the SEC, whose remit is largely disclosure, the exchanges regularly impose corporate governance requirements. Should board diversity be one of them?
Senators urge the SEC to take action
Democrats and Republicans are busy “lobbying” the SEC these days. Republicans want the SEC to nix Nasdaq’s proposal for new listing rules regarding board diversity and disclosure. Democrats want the SEC to beef up its insider trading rules in connection with Rule 10b5-1 plans. Will either find a receptive audience?
The Conference Board reports on board diversity
The Conference Board has just released a new report, Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: 2021 Edition, a primary focus of which is board diversity. According to the press release, the study is the “most current and comprehensive review of board composition, director demographics, and governance practices at US public companies.” Key to the study is that more companies are now actually disclosing the racial and ethnic composition of their boards (based on self-reporting by directors): companies providing data are up from 24% of the S&P 500 in 2020 to 59% in 2021, and from 7.7% of the Russell 3000 in 2020 to 26.9% in 2021. With regard to progress in board diversity, the data shows that women have made significant advances—on the Russell 3000 this year, women represented about 38% of this year’s newly elected class of directors, bringing total representation of women on Russell 3000 boards to 24.4%, up from 21.9% in 2020. However, boards have significant catching up to do when it comes to racial and ethnic diversity. Based on self-reported data, “boards remain overwhelmingly white,” and, for 2021, the class of new directors was 78.3% white, with only 11.5% African-American, 6.5% Latinx/Hispanic and 3.1% Asian, Hawaiian or Pacific Islander.
ISS releases proposed benchmark policy changes for 2022
Last week, ISS released for public comment its proposed benchmark policy changes for 2022. If adopted, the proposed policy changes would apply to shareholder meetings held on or after February 1, 2022. The proposed changes for U.S. companies relate to board diversity, board accountability for unequal voting rights, board accountability for climate disclosure by high GHG emitters and say-on-climate proposals.
Is expertise trouncing strategy? The Conference Board reports on board experience and diversity
In a recent report, Board Composition: Diversity, Experience, and Effectiveness, The Conference Board explores the implications for board composition of current trends toward ESG expertise and board diversity, together with the continuing emphasis on ensuring the right mix of skills and experience. This expanding list of priorities has led to increased diversity disclosure as well as greater functional expertise, larger boards and enhanced needs for board education. But while there has been a significant increase in disclosure regarding board diversity, that increase “has not been matched by increases in racial/ethnic diversity.” One cautionary note from the report: as boards seek to recruit more directors with functional expertise, such as cybersecurity or climate, the proportion of board members with business strategy experience has declined. For example, among companies in the Russell 3000, the percentage of directors with experience in business strategy decreased by five percentage points in the last three years. According to the Executive Director of the ESG Center at The Conference Board, the “recent decline in board members with business strategy experience is worrisome. Directors without broad strategic experience risk hindering effective board discussions and will likely be less useful partners for management….Although boards may want to add functional experience…, directors can bring meaningful value only if they can make the connection between these functional areas and business strategy.”
California court determines board gender diversity statute violates California Constitution
You might remember that the first legal challenge to SB 826, California’s board gender diversity statute, Crest v. Alex Padilla, was a complaint filed in 2019 in California state court by three California taxpayers seeking to prevent implementation and enforcement of the law. Framed as a “taxpayer suit,” the litigation sought a judgment declaring the expenditure of taxpayer funds to enforce or implement SB 826 to be illegal and an injunction preventing the California Secretary of State from expending taxpayer funds and taxpayer-financed resources for those purposes, alleging that the law’s mandate is an unconstitutional gender-based quota and violates the California constitution. A bench trial began in December in Los Angeles County Superior Court that was supposed to last six or seven days, but closing arguments didn’t conclude until March. (See this PubCo post.) The verdict from that Court has just come down. The Court determined that SB 826 violates the Equal Protection Provisions of the California Constitution and enjoined implementation and enforcement of the statute. This verdict follows summary judgment in favor of the same plaintiffs in their case against AB 979, California’s board diversity statute regarding “underrepresented communities,” which was patterned after the board gender diversity statute. (See this PubCo post.) The Secretary of State has not yet indicated whether there will be an appeal. In light of pressures from institutional investors and others for board gender diversity, together with the Nasdaq “comply or explain” board diversity rule (see the SideBar below), what impact the decision will have on board composition remains to be seen.
New survey: diversity on Fortune 100 and Fortune 500 boards
Audit firm Deloitte and the Alliance for Board Diversity have just released the Missing Pieces Report: The Board Diversity Census of Women and Minorities on Fortune 500 Boards, a study examining the representation of women and racial/ethnic minorities (including Black, Asian/Pacific Islander and Hispanic persons) on public company boards among the Fortune 100 and Fortune 500 companies. The analysis of the Fortune 100 began in 2004 and the Fortune 500 in 2010, based on public filings reviewed through the end of June 2020. The Report finds that the rate of change has been quite slow, espcially for some demographic groups. It remains to be seen whether the social unrest roiling the U.S. body politic—which has brought systemic racial inequity and injustice, exacerbated by the pandemic, into sharp focus—together with actions to mandate or encourage board diversity, such as California’s AB 979 or, if approved, the Nasdaq board diversity proposal, will accelerate the rate of change evidenced in the Report.
ISS releases benchmark policy updates for 2022
This week, ISS issued its benchmark policy updates for 2022. The policy changes will apply to shareholder meetings held on or after February 1, 2022. The key changes for U.S. companies relate to say-on-climate proposals, board diversity, board accountability for climate disclosure by high GHG emitters, board accountability for unequal voting rights and shareholder proposals for racial equity audits, as well as the decidedly less buzzy topics of capital stock authorizations and burn rate methodology in compensation plans.
Another complaint filed against California board diversity statutes
Yesterday, yet another complaint was filed in federal district court charging that California’s board diversity statutes, SB 826 and AB 979, are unconstitutional under the equal protection provisions of the 14th Amendment. This complaint was filed by The National Center for Public Policy Research, which, you may recall, has also filed a petition challenging the Nasdaq board diversity rule (see this PubCo post and this PubCo post). The NCPPR describes itself as “a non-profit 501(c)(3) organization that supports free market solutions to social problems and opposes corporate and shareholder social activism that detracts from the goal of maximizing shareholder returns.” The case is National Center for Public Policy Research v. Weber, and the initial scheduling conference for this case isn’t set to occur until March of next year.
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