Joins Institutional Investors and Corporate Governance Groups to Increase Focus on Gender Diversity
On October 18, 2018, Institutional Shareholder Services ("ISS") proposed a new voting policy1 on board gender diversity for public companies in the United States. The proposed policy provides that, beginning in 2020, ISS may recommend voting against the nominating committee chair where a company's board has no female directors. On a case-by-case basis, the elections of other directors who are responsible for the board nomination process may be impacted (such as at companies with no nominating committee). The new policy would apply to Russell 3000 or S&P 1500 companies, effective for meetings on or after February 1, 2020. ISS indicates that, based on current diversity trends, this policy would likely impact approximately 10% of Russell 3000 companies.
ISS's proposed policy is a direct response to the findings of its 2018 Governance Principles policy survey, in which only 3% of the investor respondents answered that they did not consider the lack of board gender diversity to be problematic. Since 2018, ISS proxy research reports have noted when a company's board lacked gender diversity. However, ISS does not currently issue adverse recommendations on directors’ elections on this basis.
ISS is seeking public comment on its proposed policy, which would allow ISS to take into consideration mitigating factors that may temporarily excuse the absence of a female director, such as:
- A commitment in the proxy statement and/or other SEC filings to appoint at least one female director to the board in the near term (before the next annual meeting);
- The presence of at least one female director on the board at the immediately preceding annual meeting; and/or
- Any other compelling factors considered relevant on a case-by-case basis.
ISS is specifically seeking feedback on the following:
- Under what circumstances should ISS consider recommending against directors other than the nominating committee chair (i.e. full nominating committee, full board, board chair, controlling shareholder)?
- What mitigating factors would temporarily excuse the absence of a female director on a company's board? What weight should be given to those factors?
- What should be considered an appropriate time commitment to appoint a female director to an all-male board and why?
- Views on the one-year transition period to implement the proposed policy.
ISS' proposed policy follows a significant focus by other groups on board gender diversity. For example, institutional investors such as BlackRock, State Street and CalPERS have put forth policies or voting guidelines to promote increased gender diversity on boards. California recently passed a law requiring female representation on the boards of all California-based companies. Glass Lewis adopted a policy2 that, beginning in 2019, it will generally recommend voting against the nominating committee chairs, and potentially other nominating committee members, at Russell 3000 companies with no female directors. Glass Lewis will take into account a company's disclosure on diversity considerations, rationale for not having any female board members and disclosed plan to address the lack of diversity on the board.
The comment period closes at 5:00 p.m. ET on November 1, 2018 and ISS expects to announce its final 2019 benchmark voting policy changes during the middle of November.
1 Available here.
2 Available here (glasslewis.com/wp-content/uploads/2018/01/2018_Guidelines_UNITED_STATES.pdf)
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