On September 8, 2017, New York City Comptroller Scott Stringer and the New York City Pension Funds announced the second phase of their Boardroom Accountability Project, which will focus on board diversity and composition. Stringer sent a letter to the nominating and governance committee chairs of 151 portfolio companies held by the New York City Pension Funds, requesting board engagement regarding the director refreshment process and disclosure of a director qualification matrix that identifies directors’ relevant skills and experience and their gender and race/ethnicity. The list of companies included several major retailers and consisted of companies that have adopted proxy access in response to shareholder proposals from the NYC Pension Funds and those where the NYC Pension Funds’ proxy access proposals received majority support in 2017.
A statement from the Comptroller’s office noted that incumbent boards’ control of the director nomination process has led to a longstanding lack of diversity, particularly since boards tend to select nominees based on recommendations from current directors and fail to seek out or consider shareholder input. With this second phase of the project, the Comptroller expressed a desire to push boards to be more transparent about their nomination processes and work to increase the number of women and minority directors. Additionally, the Comptroller hopes that the use of the director qualification matrix will enable shareholders to better determine whether nominees meet the stated criteria and to make more informed voting decisions, leading to higher quality boards.
This latest initiative follows the initial phase of the Boardroom Accountability Project, which began in 2014 and pushed for proxy access for shareholders through its submission of shareholder proposals to dozens of publicly traded companies. The first phase of the Boardroom Accountability Project ushered in widespread adoption of proxy access bylaws and has had a significant impact on proxy seasons from 2015-2017. The campaign has been viewed as highly successful, with the number of companies with meaningful proxy access growing from six companies in 2014 to currently over 425 companies, including more than 60% of the S&P 500.
Given the considerable results of the first phase in such a brief period, the new Boardroom Accountability Project 2.0 could have similar effects, possibly leading to a greater number of shareholder proposals related to board diversity in the 2018 proxy season and potentially resulting in changes in board makeup and enhanced disclosure regarding board composition. Companies should prepare for increased shareholder engagement surrounding this issue.