Driving change – Diversity and the general counsel

Diversity and inclusion will feature prominently in the thinking of many corporate leaders and investors in 2021. That means corporate secretaries and general counsel will have an important role to play in advising boards, finding candidates and devising disclosures that will help shape narratives on a key set of issues.

The protest movement sparked by the disproportionate impact of the Covid-19 pandemic on people of color and the deaths of African Americans at the hands of police officers has shone a renewed spotlight on racial injustice and inequity, and led many companies to issue statements of support for social justice. But investors are pressing companies to take other specific actions to improve diversity within their organization, or at least to report on who makes up their board and workforce.

For example, State Street Global Advisors’ (SSGA) global chief investment officer Richard Lacaille wrote to board chairs in late summer explaining that from 2021, SSGA will ask portfolio companies to explain their risks, goals and strategy relating to racial and ethnic diversity and to make relevant disclosures. SSGA aims to tackle these issues via engagement. ‘[But] if required, we're prepared to use our proxy voting authority to hold firms accountable for meeting our expectations,’ Lacaille wrote.

Perhaps the most obvious change has come from a campaign launched by New York City comptroller Scott Stringer on behalf of the city’s public retirement systems. In July Stringer sent letters to the CEOs of 67 S&P 100 companies urging them to disclose data that would enable investors to measure the success of their diversity and inclusion practices, which he described as fundamental to the creation of long-term shareowner value.

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 EEO1 report. Companies must already file these reports with the US Equal Employment Opportunity Commission and some investors have for decades been asking them to release it, but they have largely met resistance until now. Stringer’s office said that, as of late September, 29 US public companies were disclosing their EEO1 report, of which only 14 were in the S&P 100. The campaign increased that number to 48 S&P 100 companies.

A new California law is also moving the ball forward. It will require all public companies with headquarters in the state to have a minimum ratio of board members from under-represented communities starting December 31, 2021 and then new ratios from December 31, 2022. It defines a director from an under-represented community as ‘an individual who self-identifies as black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identifies as gay, lesbian, bisexual or transgender.’

You can read the full article at the Corporate Secretary Yearbook.