March 12, 2021

Diversity, Equity & Inclusion: Investors Want Data – and Companies Might Be Forced to Provide It

This article about the “Morningstar Minority Empowerment Index” caught my eye. The Index taps into investor appetite for DEI data by selecting US stocks based on an NAACP scorecard & Sustainalytics data.

As is usually the case with these types of issues, investors aren’t just excluding “under-performing” companies from their portfolios – they’re also agitating for change. As I blogged earlier this week on the Proxy Season Blog, proponents have submitted more than 60 “diversity & racial justice” proposals this season. Over 20 companies have received proposals asking for a D&I report – and at least 6 companies have received a proposal asking them to conduct a “civil rights” or “racial equity” audit (including Amazon, Citi, BlackRock & State Street).

Corp Fin recently rejected J&J’s no-action request to exclude a Trillium proposal that requests a civil rights audit. The Staff didn’t agree that J&J’s publication of a D&I report was “substantial implementation” of the proposal, that it dealt with matters related to the company’s “ordinary business,” or that the proposal was “materially false & misleading.” This WSJ article speculates that the Staff might agree with fewer no-action requests this year.

Here’s the text of the resolution that appears in the company’s proxy statement:

Resolved, shareholders request the company conduct and publish a third-party audit (within a reasonable time, at a reasonable cost, and excluding confidential/proprietary information) to review its corporate policies, practices, products, and services, above and beyond legal and regulatory matters; to assess the racial impact of the company’s policies, practices, products and services; and to provide recommendations for improving the company’s racial impact.

If J&J ends up publishing an audit, it won’t be the first company to do so. Starbucks has published two assessments, and Facebook published a civil rights audit last summer.

As You Sow’s New “Scorecards”: Racial Justice & Workplace Equity

As You Sow is out with a pair of new scorecards for the S&P 500 (and they’ve filed a bunch of related shareholder proposals):

Racial Justice – scoring companies based on their “racial justice statements,” corporate policies and practices across 22 data points

Workplace Equity – assessing the quality of companies’ DEI disclosures

To gather data, they are looking at websites (including reporting/disclosure and career pages), social media accounts, and sustainability reports. The results of the findings are available as an overall composite list of the “top 10” & “bottom 10” – and also can be sorted by sector, HQ state, region, market cap, and number of employees. Here’s some of the key “Workplace Equity” findings:

– The largest companies by market cap, and the largest employers by headcount, are most likely to release meaningful workplace diversity and inclusion data.

– Almost half (46%) of the 100 largest companies by market cap in the S&P 500 release their consolidated EEO-1 forms, a good first step for sharing workplace composition. Within the 100 largest employers in the S&P 500, more than 1 in 4 do so. Of the companies that fall within both categories 30 of 53 (57%) release this form.

– More than 1 in 4 of the largest 100 companies release their recruitment rates of female employees. Almost 1 in 5 release their retention rates of female employees, and 1 in 10 release their recruitment rate of female employees.

– Disclosure rates of recruitment, retention, and promotion data by race and ethnicity is still catching up to gender data, likely a reflection of the #metoo movement gaining traction in 2017, while the protests in the aftermath of George Floyd murder began in late May, 2020, less than a year ago.

– Across sectors, a few companies have shown early leadership in publishing recruitment, retention, and promotion data by race and ethnicity. These companies include: Allstate, Apple, BlackRock, Norfolk Southern Corp and Oracle Corp which release their recruitment rates; Alphabet, Edison International, Intel, PVH Corp and Twitter, which release retention rates; and Consolidated Edison, Goldman Sachs, Progressive, Twitter and Walmart which release promotion rates.

– 16% of the S&P500 release at least one recruitment statistic related to race or ethnicity. Within the 100 largest companies by market cap, 23% do so. Within the 100 largest employers, 23% do so.

– 15% of the S&P 500 have released a quantifiable goal related to their workplace diversity, equity and inclusion goals. Within the 100 largest companies by market cap, 22% do so. Within the 100 largest employers, 22% do so. Of the companies that fall within both categories 13 of 53 (25%) release this form.

As You Sow is also continuing to release its scorecards on Waste & Opportunity – measuring 50 large companies in the beverage, quick-service restaurant, consumer packaged goods and retail sectors – and Pesticides in the Pantry – scoring 14 food manufacturers on transparency & risk in food supply chains – as well as its mainstay, the “100 Most Overpaid CEOs.”

California Board Diversity Statute: Less Than Half of Companies Report Compliance

At our “Women’s 100” session last week, there was some great back & forth about whether California-headquartered companies are relocating due to that state’s board diversity legislation. The gender diversity law, SB 826, required listed companies with principal executive offices located in California (no matter where they are incorporated) to include at least one woman on their board of directors by the end of 2019. That minimum increases to two by December 31, 2021, for companies that have five or fewer directors – and to three women directors, for companies that have six or more directors. The newer law, AB 979, which requires adding directors from other underrepresented groups, will first come into play at the end of this year.

According to the “Women on Boards” report that was released last week by the California Secretary of State, 22 listed companies moved their headquarters out of the state last year – and 6 moved into the state (the report doesn’t analyze whether the moves are in reaction to the legislation or for other, unrelated reasons). The report included a couple of other surprising data points as well:

– Out of the 647 companies subject to the rule, 318 filed the state’s required disclosure statement – and 311 of those statements showed that there’s at least one woman on the board

– 288 companies voluntarily filed the state’s disclosure statement

The Golden State publishes this annual review in order to monitor compliance with its board diversity laws – next year, there will also be a review of underrepresented communities on boards. But for now, the exercise seems to show that a lot of companies are ignoring the reporting requirement, which would appear to result in fines under the statute.

The report lists every company identified as being required to comply with the rule, the date they filed the disclosure statement (it’s blank for those that skipped the filing), and whether or not they reported having at least 1 female director in 2020. It doesn’t include company size as a data point, but a quick skim indicates that the larger & more familiar companies seem to be complying, and the smaller companies…not. There are exceptions on both ends of that spectrum.

The last thing to note is that this report isn’t all that useful if you’re looking to get a sense of the current composition of California boards, because it pulls data from backward-looking Form 10-Ks and California disclosure statements that were mostly filed during the early part of 2020 calendar year. But it paints a pretty telling picture of whether companies believe that filing the disclosure statement is worth their while.

Liz Dunshee