September 15, 2020

Vanguard’s Expectations for Board Diversity

Following the killing of George Floyd, investors are increasingly calling for change and looking for company and board diversity data.  A few weeks ago, I blogged about State Street’s request for companies to disclose board and workforce racial diversity data and last week, Liz blogged on our “Proxy Season Blog” about Neuberger Berman’s willingness to use its proxy votes to push for diversity disclosure.  With all this recent news, some may have missed that last year, Vanguard spoke up on board diversity by detailing expectations about board diversity as part of its 2019 Investment Stewardship Report.

In that report, Vanguard explained that in addition to promoting board gender diversity, the asset manager is asking boards to seek greater diversity.  Here’s an excerpt and Vanguard’s list of expectations for public companies:

We have long believed in the importance of diversity in the boardroom, and we have increasingly advocated for greater representation of women on corporate boards. We are expanding our focus to more explicitly urge boards to seek greater diversity across a wide range of personal characteristics, such as gender, race, ethnicity, national origin, and age. Our board diversity expectations of public companies includes:

(1) Publish your perspectives on board diversity. Here’s what we ask companies: Does your board share its policies or perspectives on diversity? How do you approach board evolution? What steps do you take to get the widest range of perspectives and avoid groupthink? Vanguard and other investors want to know.

(2) Disclose your board diversity measures. We want companies to disclose the diversity makeup of their boards on dimensions such as gender, age, race, ethnicity, and national origin, at least on an aggregate basis.

(3) Broaden your search for director candidates. We encourage boards to look beyond traditional candidate pools—those with CEO-level experience— and purposely consider candidates who bring diverse perspectives into the boardroom.

(4) Make progress on this front. Vanguard expects companies to make significant progress on boardroom diversity across multiple dimensions and to prioritize adding diverse voices to their boards in the next few years.

Board Composition: Snapshot of Ethnic & Gender Diversity Data

With increased attention on board composition, just last week Russell Reynolds issued an updated report on ethnic & gender diversity for U.S. public company boards and it says that Black representation on S&P 500 boards was surprisingly low in 2019 – only 6% of S&P 500 directors were Black.  The report provides a snapshot of board ethnic and gender diversity data, including trends – helpful data to take a look at and have on hand, especially when directors ask about trends and benchmarks. Here’s a few high-level data points:

– Compared to data for S&P 500 directors, Fortune 100 and 500 boards had slightly higher percentages of Black directors – 11.1% and 8.6% respectively

– When looking at trend data, the report shows board gender diversity has improved significantly from 2010 to 2018 but over that same time span, there has been minimal movement in board ethnic diversity – for Fortune 500 companies, the percentage of women directors increased steadily from 16 to 23%, while the percentage of Black directors has hovered between 7 and 9%

– At the time of the report, there were 161 companies in the S&P 500 without any black directors and although that’s a high number, Russell Reynolds reports that compared to a mid-July 2020 study, that number has actually declined from 172 – a 6% improvement in just a couple of months

– Data from KPMG, Ascend and Pinnacle included in the report shows Asian director representation in the Fortune 100, 500 and 1000, the majority of which fail to include at least one Asian director – see this KPMG study about the prevalence of Asian directors on Fortune 1000 boards

$10 million Whistleblower Award!
Earlier this summer, John blogged about someone hitting the whistleblower jackpot and since then there have been several sizable awards. Now there’s another with the SEC issuing this press release announcing an award of more than $10 million, not quite as high as the earlier jackpot but it’s no small change – and it likely brightened the whistleblower’s day. Persistence has a way of paying off, here’s an excerpt from the SEC’s Order:

Claimant provided Enforcement staff with extensive and ongoing assistance during the course of the investigation, including identifying witnesses and helping staff understand complex fact patterns and issues related to the matters under investigation; the Commission used information Claimant provided to devise an investigative plan and to craft its initial document requests; and Claimant made persistent efforts to remedy the issues, while suffering hardships.

– Lynn Jokela