Recent initiatives by institutional investors and others have raised the bar for DE&I commitments, reporting, and actions. Here are examples of such initiatives and their implications for the 2021 proxy season.

Investor Interest in Diversity-Related Disclosures and Actions Grows

By Liz Zale and Chris Cernich


Diversity Disclosure Governance Online Article

For directors and management alike, recent initiatives by institutional investors and others—ranging from public calls and shareholder proposals for enhanced disclosure to state legislatures enacting mandates for board diversity—have raised the bar for diversity, equity, and inclusion (DE&I) commitments, reporting, and actions.

Examples of DE&I-related initiatives by significant stakeholders include the following recent actions:

  • The New York City Comptroller’s Office, which represents almost $160 billion in assets under management (AUM) in three New York City retirement funds, called upon 67 S&P 100 companies in specific job categories to publicly disclose the racial, ethnic, and gender composition of their workforces by publishing their annual Employment Information (EEO-1) Reports. The pension fund threatened to submit shareholder proposals or oppose the reelection of incumbent directors at noncompliant companies.
  • BlackRock asked portfolio companies to disclose the racial and ethnic characteristics of their US workforces in a manner aligned with the Sustainability Accounting Standards Board (SASB),  and indicated that this fall it will release “refreshed expectations” for human capital management.
  • State Street Global Advisors asked portfolio companies to increase disclosure on strategy, goals, metrics, and board oversight as they relate to diversity, warning that it might use its proxy voting authority “to hold companies accountable for meeting [its] expectations.”
  • California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund, urged state legislators to toughen disclosure requirements around companies’ human capital management policies, including diversity-related data, in annual reports. The US Securities and Exchange Commission’s recent amendments to Regulation S-K disclosure also address this topic.
  • The New York State Comptroller, who serves as trustee of the New York State Retirement Fund, asked portfolio companies to directly engage on plans to add a person of color to their boards, disclose three years of EEO-1 workforce diversity data in the upcoming proxy statements, and annually disclose policies, plans, and strategies to promote inclusion and diversity. The comptroller also indicated that he would potentially withhold votes from incumbent directors for inadequate responsiveness.
  • The California state legislature followed its 2019 law mandating gender diversity on boards with legislation ratified in September 2020 that requires all public companies headquartered in the state to have at least one director from an underrepresented community (self-identified by race or ethnicity, or as LGBTQ+) by the end of 2021.  
  • Other advocacy efforts include the Board Challenge, a campaign that encourages companies to commit to adding a Black board member within the next year or, if the company already has at least one Black director, to pledge to help foster continued efforts for change. A campaign organized by As You Sow to increase corporate transparency around workplace equity data has 125 investor signatories, representing $1.9 trillion in institutional AUM, to date.

Implications for the 2021 Proxy Season

These investor-led DE&I efforts are coupled with the expectation that companies engage with their investors directly on these matters and underscore the risks—ranging from shareholder proposals to low voting support for directors—posed by insufficient disclosure of DE&I strategy, progress, or board oversight. Even companies who haven’t received such investor requests directly should anticipate shareholder proposals focused on DE&I-related disclosure in the coming proxy season.

Being forewarned does not necessarily mean the board is forearmed. Boards need to consider potential actions they should take prior to the 2021 annual meeting, including preemptive DE&I communications for external and internal stakeholders. Proxy disclosures in particular will be closely scrutinized for credible and compelling narratives that describe DE&I strategy and a framework for assessing disclosure. Boards will also need to prepare to constructively address shareholder feedback embedded in any withhold votes on directors.

Further Steps to Consider

The DE&I-related initiatives cited here are just the beginning. As pressure for better disclosure and progress increases, companies cannot respond merely with data. They must put forward compelling multi-year narratives that explain that data, the DE&I strategies they embody, and the standards their boards will uphold on these issues. As part of their duty of oversight, directors must also assess how to hold management accountable for developing and delivering appropriate near- and long-term commitments that lead to value creation.

Likely the most significant difference in the upcoming proxy season with regard to DE&I-related strategies is that institutional investors, like BlackRock and State Street, are not the sole audience—and perhaps should not be the primary focus for company communications. An effective communications strategy will also comprise robust plans for engaging with stakeholders, including current and potential employees; customers; vendors; regulators; legislators; and community and philanthropic partners.

Liz Zale
Liz Zale is managing director at Sard Verbinnen & Co.

Chris Cernich
Chris Cernich is managing partner at Strategic Governance Advisors, an affiliate of Sard Verbinnen & Co.