This year, some may recall that ISS began including information about board diversity in proxy research reports. In 2022, ISS will take things a bit further by issuing “against” or “withhold” recommendations for nominating committee chairs (or other directors on a case-by-case basis) of companies in the Russell 3000 or S&P 1500 indexes where the board has no apparent racially or ethnically diverse members. ISS already had a similar process in place relating to board gender diversity.
This Aon blog provides a reminder that subjective judgment may come into play with ISS data on director diversity and to help avoid “against” recommendations, this off-season would be a good time to revisit ISS’s research report commentary about a company’s board diversity or lack thereof. ISS commentary about board composition could differ from what a company understands about the makeup of its board. Here’s an excerpt:
We recommend that all public companies — even companies with boards currently thought to be sufficiently diverse — carefully examine the written analysis of director elections in their 2021 ISS report to determine whether it includes any indication of a lack of racial or ethnic diversity on the board. Additional concerns may arise in harmonizing ISS’ definitions of diversity with those of other entities. For example, California identifies LGBTQ+ directors as diverse, while ISS does not. Meanwhile, NASDAQ does not consider directors of Middle Eastern descent as racially or ethnically diverse but ISS does.
Companies may wish to consider including in their proxy statement a Board Diversity Matrix to clearly indicate the level of gender and racial/ethnic diversity of the board of directors. Firms may also consider providing language around composite board diversity percentages without publicly identifying individual directors.
– Lynn Jokela