Political Pressure Builds for Companies to Increase Board Diversity: Is the check-the-box approach to board diversity a push in the right direction?

• Author: Raymond, Doug
• Position: LEGAL BRIEF

The New York City Comptroller Scott Stringer, together with New York City pension funds, launched its Boardroom Accountability Project in 2014, and it's been reasonably successful.

Now Stringer has his sights on boardroom diversity.

The 2014 effort put pressure on public companies to give their shareholders the right to include, in the company's own proxy statement, a shareholder's nominees for director alongside the board's nominees. Without this, shareholders seeking to elect a director who was not part of the management slate must incur the expense of preparing and sending separate proxy materials, which are often ignored by other shareholders.

Giving shareholders the right to have their candidates appear in the company's proxy statement alongside the management slate, a process known as "proxy access," has been directed at increasing the leverage of shareholders and, frankly, encouraging more contested director elections. The proxy access movement has, in general, been premised on the belief that making it easier for shareholders to run alternate candidates for the board will increase the quality of corporate governance, at least by causing boards to look more carefully at their own nominees as they try to ward off potential challenges.

This effort has been reasonably successful, as today over 440 companies, including over 60% of the S&P 500, have adopted some version of proxy access.

Apparently encouraged by this, Stringer recently rolled out phase two of his campaign, this time focused on board diversity and qualifications. The "Boardroom Accountability Project 2.0," is designed to enable shareholders to better "... assess how well-suited individual director nominees are for the company ... and identify any gaps in skills, experience or other characteristics, [so that shareholders may] more fully exercise our voting rights."

Presumably, this will also increase the willingness of shareholders to nominate an alternate slate.

In the first wave of this campaign, the comptroller, again together with the NYC pension funds, called upon over 150 public U.S. companies to provide an annual chart listing the race and gender of their directors, as well as each director's "most relevant skills, experience and attributions."

This requested chart and additional information regarding the diversity and gender composition of their boards would be released every year, in the form of a "board matrix," a check-the-box box format highlighting areas such as...