One of the most influential shareholder advisors has urged US companies to reveal ethnic affiliation to their board members and top executives as pressure builds to diversify the top segments of the US company.
Institutional Shareholder Services, a law firm reviewing the impact of the US corporate governance agenda, has written to companies asking them to publish the disclosures on a voluntary, comprehensive and self-identified basis.
Many institutional investors use the data compiled by the ISS and its main rival, Glass Lewis, to inform about their voting so that the additional disclosure can lead to votes against boards that shareholders consider insufficiently diverse.
Companies have faced intensified scrutiny of diversity at all levels since the murder of George Floyd triggered protests against racial inequality. According to ISS data, directors accounted for just 4.1
The emergence of environmentally, socially and governance-focused Investment Strategies, known as the ESG, has increased the pressure to add more female and non-white board members to boardrooms.
Vanguard is among the institutions that have asked for greater diversity, and tells the companies they invest in: “The business case is compelling … Various boards make better decisions, and better decisions lead to better results in the long run. ”
ISS has attempted to compile its own data on directors' ethnicity in the past, but the new approach suggests that it is seeking a more comprehensive disclosure.
A letter seen by FT from Marija Kramer, Head of ESG for ISS, tells companies "we are seeking information about the self-identified race / ethnicity of each of the company's directors and now with the Executive Officer (NEOs), to the extent that the company and the some directors or NEOs are willing to provide this. "
Subodh Mishra, CEO of ISS, confirmed the visit and said it was" in line with our long-standing focus on ensuring the accuracy of data that underpins our research , ranking, and other solutions. "
It will allow each director to choose to reveal up to three ethnicities, from a list of eight used by the US government since 1977, to describe their ethnicity as" other "or to refuse to respond.
Pamela Newkirk, whose book Diversity Inc examines the history of workplace diversity initiatives and welcomed the ISS & # 39; features welcome.
"Transparency should help not always, as technical annual reports show. But if institutions are seriously looking at increasing diversity, transparent metrics are a good place to start, "she said.
Steve Klemash and Jamie Smith of the EY Center for Board Matters last year found that 45 percent of Fortune 100 index companies revealed explicit statistics on racial or ethnic diversity for their boards, up from 23 percent three years earlier.
The Securities & Exchange Commission last year told US companies that they must disclose self-reported diversity properties played a role in selecting candidates for board seats, though Some critics have argued that such disclosure is insufficient and that regulators should demand quotas.
In its letter, ISS said it is looking "to ensure that all stakeholders have accurate and complete information when they consider the ongoing debate on the state of corporate diversity beyond gender. ”
It added that it planned to“ engage with a broad cross-section of stakeholders on potential needs to expand use. of self-identified race and ethnicity director data ”in their ESG classification methods, electoral policies, and other offerings.