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In 2014, NYC Comptroller Scott Stringer, who oversees the NYC pension funds, submitted proxy access proposals to 75 companies—and ignited the push for proxy access at public companies across the U.S. The form of proxy access proposed in this first phase of the Boardroom Accountability Project was very similar to the form of proxy access mandated under the SEC's rules that were overturned in 2011, requiring an eligibility threshold of 3% ownership for three years, with shareholders having the right to nominate up to 25% of the board. (See this PubCo post and this PubCo post.) It has been reported that, of the 75 proposals submitted by the NYC comptroller in 2014, 63 went to a vote, with average support of 56% and 41 receiving majority support. In 2015, Stringer submitted more proxy access proposals. Notably, until Stringer's initiative, private ordering for proxy access had not gathered much steam; only six companies had adopted proxy access. Stringer's office reports that, today, more than 425 companies, including over 60% of the S&P 500, have enacted proxy access bylaws. Now, the NYC Comptroller's Office, leveraging the success of its proxy access campaign and the "powerful tool" it represents to "demand change," has announced the Boardroom Accountability Project 2.0, which will focus on corporate board diversity, independence and climate expertise. Will Project 2.0 have an impact comparable to that of the drive for proxy access?

To launch the new campaign, Comptroller Stringer is calling on the boards of 151 U.S. companies—92% of which have adopted proxy access and 80% of which are in the S&P 500—"to disclose the race and gender of their directors, along with board members' skills, in a standardized 'matrix' format—and to enter into a dialogue regarding their board's 'refreshment' process." Stringer contends that this level of transparency would "push more boards to be diverse and independent," positioning them to "deliver better long-term returns for investors." According to the press release, Stringer and the pension funds "are pressing companies to commit to working with them and other large, long-term shareowners to identify suitable independent candidates — including ones that bring diverse perspectives and other skills, such as climate expertise, to the boardroom."

Stringer attributes the current

"persistent lack of diversity on corporate boards" to a "nomination and 'election' process that is effectively controlled by the existing board—and as a result, more akin to a coronation. At S&P 500 companies, for example, just 21% of board members are women, 5% are African American, 3% are Asian, and 2% are Hispanic. This disparity exists despite studies that show diverse groups make better business decisions. This lack of board quality and diversity can be traced to boards' failure to cast a wide net when looking for new members. According to PwC's 2016 Annual Corporate Directors Survey, 87% of directors said they rely on board member recommendations to recruit new directors, while only 18% said they consider investor recommendations."

Board diversity is believed to be more than just a social issue. Rather, many view it as critical to corporate performance because research has shown that women directors have a salutary impact on companies' financial performance and governance matters. For example, a recent study from the Peterson Institute for International Economics demonstrated that the presence of women in corporate leadership positions (both on corporate boards and in executive positions) can improve firm performance. The study looked at 21,980 firms headquartered in 91 countries, concluding that, for "the sample as a whole, the firm with more women can expect a 6 percentage point increase in net profit, while overall median net profit was just over 3 percent." (See this PubCo post.) Similarly, it was reported that, in May, Morgan Stanley indicated that companies with more women in the ranks had better returns and lower volatility. Moreover, according to Bloomberg, "there's a pile of research showing that boards and other leadership panels with 50 percent women think more critically, which may explain the better results. Group dynamics change for the better when both sexes are present. Diverse groups solve problems better than homogeneous ones do, possibly because the men and women monitor each other's performance more closely." (See this PubCo post.)

The letters Stringer sent to 139 companies (which had enacted proxy access after receiving a proposal from the NYC Pension Funds) requested engagement with a member of the board nominating committee to address topics such as the following sample:

"1. We would like to discuss the matrix that your board currently uses to help us better understand the range of skills and experiences the board considers most critical and how your current directors and potential board candidates best serve the Company's long‐term business strategy, your executive succession planning process and your risk oversight responsibilities.

2. We would like to understand how you evaluate individual directors on an ongoing basis, to assess whether and how they continue to contribute to the above board responsibilities as such responsibilities and individuals continue to change. In cases where a particular director no longer is able to contribute in this way, what processes do you have for discussing with this director stepping down from your board?

3. We would like to discuss how we can establish a process for any director search firms that you may retain, pursuant to which such firm(s) would reach out to us and other significant shareowners for suggestions for the names of both potential board candidates and other organizations that specialize in sourcing potential board candidates who are women and people of color.

4. We would also like to discuss how we can establish a more structured process, pursuant to which we and other significant shareowners may provide to your Committee the names of potential board candidates, on an ongoing basis."

The form of letter sent to the other 12 companies (which had received a proposal from Stringer's office, but had yet to adopt proxy access, majority shareholder support notwithstanding) is similar, but also requests the opportunity for input into the company's proxy access implementation process.

Demonstrating its success so far, the NYC Comptroller's office observes that, "over the past three years, at least 27 of the 51 companies that the Comptroller targeted for proxy access due to inadequate board diversity have added at least 43 directors who are women, non-white, or both, and the largest oil and gas company in the world added a climate scientist to its board."

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The NYC Comptroller (representing the NYC pension funds) is just the latest institution to take a more emphatic position on board diversity as a governance issue; a number of large institutional holders now include diversity among their goals for portfolio companies managements and boards (see this PubCo post). In its Investment Stewardship Report for Q2 2017, BlackRock (reportedly the largest asset manager, with $5.1 trillion under management) indicated that, in the second quarter, it supported eight out of nine shareholder proposals that requested the adoption of a policy on board diversity or disclosure around plans to increase board diversity. The majority of the companies did not have any women on their boards. Earlier this year, another significant asset manager, State Street Global Advisors, which manages $2.47 trillion in assets, announced in this press release that it was "calling on the more than 3,500 companies [in which] State Street invests on behalf of clients, representing more than $30 trillion in market capitalization to take intentional steps to increase the number of women on their corporate boards." (See this PubCo post.) Vanguard has also recently announced, in its Investment Stewardship Report for 2017, that it too has been taking a more active role in advocating for effective corporate governance at its portfolio investments, including advocating for independent and diverse boards. (See this PubCo post.)

For further information on this topic please contact Cydney Posner at Cooley LLP by telephone (+1 415 693 2000) or email ([email protected]). The Cooley LLP website can be accessed at

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