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Feb 19, 2015

Investors seek more disclosure about board diversity efforts

Shareholder resolutions asking firms to report how their boards are expanding recruitment efforts to women without CEO or prior board experience

The Thirty Percent Coalition is making another big push to expand the number of women serving on the boards of the largest US companies. After a third letter-writing campaign in three years last fall by institutional investors representing $3 trillion in assets, coalition members have filed resolutions at roughly 25 companies, including eBay, Chipotle Mexican Grill and SBA Communications, asking for a report by September 2015 on their boards’ plans to increase diverse representation, including an assessment of how effective such efforts have been until now.

A sample resolution drawn up by the Coalition asks that the report also include a description of how the board’s Nominating and Corporate Governance Committee, in line with its fiduciary duties, makes reasonable efforts to include women or minority candidates in the pool from which directors are chosen and ‘expand director searches to include nominees from non-executive corporate position and experience in non-traditional environments such as government, academia, and non-profit organizations.’ Coalition members are tailoring the sample resolution to the circumstances of the firms they are targeting.        

Not all institutional investors that have filed such a resolution have made it public, preferring to conduct dialogue with companies more quietly. But Charlotte Laurent-Ottomane, executive director of the Coalition, says she expects to see additional resolutions filed, given it’s still early in the 2015 proxy season.

‘Hopefully, we’ll see a lot of these resolutions withdrawn,’ she says. ‘Nobody really wants to bring it to a vote. They want to open a dialogue [with the company] and that’s what we’ve been successful in doing’ in prior years.

Last year, 23 of 29 board diversity resolutions filed by Coalition members were withdrawn after the boards of those companies adopted policies making diversity a priority and amending their corporate charters to commit to that in public. In 2013, 19 of 24 resolution were withdrawn. ‘That’s a pretty good success rate,’ says Laurent-Ottomane.

The US is one of the few developed countries where this effort is being led primarily by the investor community. France, Spain and Norway each have imposed quotas for public companies, while the governments of the UK and Australia require accountability disclosures. In Canada, under the Ontario Securities Commission’s comply-or-explain rule, companies listed on the Toronto Stock Exchange now must disclose their policies and targets regarding the number of women on their boards and in their C-suites, as well as report the number of women directors and executives.  

Since the Thirty Percent Coalition launched its first letter-writing campaign in early 2012, 17 companies that didn’t have any women on their board at the time have appointed at least one woman to their boards, though Laurent-Ottomane doesn’t claim direct credit for these results.

For the past few years, finding qualified women to serve on boards has presented a catch-22 of sorts because of how narrowly most companies were defining board qualifications.

‘More recently the conversation has shifted so that people are asking what does that mean? Does it mean you have to have been a sitting CEO or a retired CEO?’ says Laurent-Ottomane. ‘Boards -- at least ones that want to make a change -- are looking at what competencies [they] need to make it successful. Once that understanding is reached, they look for candidates that are women but with these qualifications. It’s a different lens of looking at that than five years ago.’

One hindrance to increasing gender diversity has been executive search firms that most companies use to help them fill vacant board seats. ‘Search firms tend not to dip into that pool’ of women who would like to serve on a board and are qualified but have no prior board experience.

The Coalition urges companies to check out its website which posts a list of resources companies can use to find qualified female board candidates. Companies can also ask the search firms they contract with to use those resources, she adds.

She finds last month’s news that Macy’s has reached 50 percent parity in its boardroom refreshing because ‘they are choosing people who have never served on a board before.’ (The appointment of Leslie Hale from RLJ Lodging Trust in January brought the number of women on Macy’s 12-member board to six, as reported by Fortune this week.) 

Following the lead of an initiative by Australia’s human rights commissioner, aimed at getting companies to include their diversity objectives in their exchange listing details, the Coalition has established its own ‘Champions of Change’ group, comprised of the CEOs, chairs or chairs of the board nominating committees of seven companies with the same aim in mind.

‘Listing your targets changes everything because now you have to think about them,’ says Laurent-Ottomane.