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Jan 13, 2021

SSGA targets diversity disclosures in voting practices

Firm to vote against nominating and governance committee chairs at large companies that do not report the board’s racial and ethnic makeup

State Street Global Advisors (SSGA) is ramping up the pressure for improved diversity and inclusion disclosures as part of its 2021 proxy voting and engagement plans.

In a letter to board members this week, SSGA CEO Cyrus Taraporevala announced proxy voting practices intended to make sure that companies are transparent about the racial and ethnic composition of their boards and workforces. According to these practices:

  • In 2021 SSGA will vote against the chair of the nominating and governance committee at companies in the S&P 500 and FTSE 100 that do not disclose the racial and ethnic composition of their board
  • In 2022 the firm will vote against the chair of the compensation committee at companies in the S&P 500 that do not disclose their US Equal Employment Opportunity Commission’s EEO-1 survey response
  • In 2022 the firm will vote against the chair of the nominating and governance committee at companies in the S&P 500 and FTSE 100 that do not have at least one director from an under-represented community on their board.

‘The preponderance of evidence demonstrates clearly and unequivocally that racial and ethnic inequity is a systemic risk that threatens lives, companies, communities and our economy – and is material to long-term sustainable returns,’ Taraporevala writes.

These voting practices build on guidance sent to companies last summer in which SSGA global chief investment officer Richard Lacaille said that starting in 2021 the asset manager would ask portfolio companies to explain their risks, goals and strategy relating to racial and ethnic diversity and to make relevant disclosures to shareholders.

Lacaille wrote at the time that SSGA would seek to tackle these issues via its engagement: ‘If required, however, we are prepared to use our proxy voting authority to hold companies accountable for meeting our expectations.’

‘As we indicated in this guidance, our primary challenge as investors is the lack of publicly available racial and ethnic diversity data,’ Taraporevala writes this week. ‘While most companies in the [US] are required by regulators to track racial and ethnic diversity, disclosure at the board level is sparse and only 6 percent of Russell 1000 companies actually share detailed data publicly on their employees’ gender and ethnic identities.’

Investors have been increasingly vocal in their demands for companies to disclose information about diversity on their boards and in their workforces since the emergence of widespread protests last summer sparked by the disproportionate impact of the Covid-19 pandemic on people of color and the deaths of George Floyd and other African Americans at the hands of police officers.

A high-profile example of this has been a campaign by New York City comptroller Scott Stringer on behalf of the city’s public retirement systems urging companies to release their EEO-1 reports. Companies have had to submit these to the government for years but most have been reluctant to release them. In July last year Stringer sent letters to the CEOs of 67 S&P 100 companies urging them to disclose data to enable investors to measure the success of their diversity and inclusion practices.

He later announced that 34 of those companies had agreed to release data on the composition of their workforce by race, ethnicity and gender from their annual EEO-1 report. Stringer’s office said that, as of late September, 29 US public companies were disclosing their EEO-1 report, of which only 14 were in the S&P 100. The campaign increased that number to 48 S&P 100 companies.

‘Of course, disclosure is just a starting point. Building on the more than 70 engagements we have held with companies on racial and ethnic diversity since August, our investee companies should be prepared for thorough engagements on these and related subjects in the coming year, and we will analyze shareholder proposals accordingly,’ Taraporevala writes.

He notes that every company – including his own – is ‘on a journey’ in terms of racial and ethnic diversity, adding that SSGA will disclose the racial and ethnic composition of its board and its EEO-1 data this year. The firm will also take 10 actions to eliminate racial inequity in the organization, including tripling its black and Latinx leadership. The board ‘will hold our senior management accountable for our progress,’ he says.

In a new paper also released this week, SSGA reports that its asset stewardship team has had more than 70 engagements with issuers on racial and ethnic diversity since issuing its guidance in August and that companies have been largely supportive of its expectations.

It notes that some have questioned whether the EEO-1 report is an accurate representation of a company’s workforce, but the authors ask companies to disclose this data as a baseline and ‘encourage them to share additional context to help investors understand the fuller picture.’

The team also reports that it expects many companies will offer disclosures ‘generally in line with our expectations’ in the coming months.

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...