The New York City Retirement Systems (NYCRS) continues its effort to foster diversity in the leadership of the companies in which it invests. NYCRS is a collection of pension funds that together have over $200 billion in assets under management, and Comptroller Stringer serves as the investment advisor and custodian/trustee.
Boardroom Accountability Project 3.0
Last week, Comptroller Stringer announced the launch of the latest phase of the NYCRS’ shareholder engagement initiative, Boardroom Accountability Project 3.0. With each phase, the NYCRS designates one or more themes on which to engage with its portfolio companies. Project 3.0’s theme is increasing the accessibility of director and CEO positions for women and persons of color by encouraging companies to adopt a “Rooney Rule” policy, resembling the one employed by the National Football League. In its simplest form, a “Rooney Rule” policy ensures that a vacancy is filled by drawing from a candidate pool with at least one minority candidate. In addition, NYCRS suggest that companies broaden the candidate pool to also include applicants from “non-traditional environments such as government, academic and non-profit organizations”. Comptroller Stringer sent letters (similar to this sample letter) to 56 S&P 500 companies that have not disclosed that they apply a “Rooney Rule” policy both for director and CEO roles. NYCRS states that companies receiving the letters were selected without regard to their current level of diversity.
Impacts of Project 2.0 Board Diversity Initiatives
The NYCRS website states that prior initiatives in Project 2.0 addressing board diversity have proven successful, mentioning that 62 of its “portfolio companies have brought on 77 diverse directors to their boardrooms”. Project 2.0, which launched in the fall of 2017, also encouraged companies to use a “board matrix” to better communicate the state of board diversity by revealing the skills, gender, and race/ethnic of individual directors. The efforts of NYCRS and other advocates for diversity have resulted in an increased number of proxy statements including a board matrix. According to a study by The Conference Board, 30.2% of S&P 500 companies utilized a skill matrix in their respective 2018 proxy statements.
Considerations for Project 3.0 Impacts
Recipients of Comptroller Stringer’s letter may be receptive to the idea if the results from PwC’s latest survey on board diversity are any indication. According to PwC’s 2019 Annual Corporate Directors Survey, which was recently released and polled over 700 directors, a strong majority of respondents approved employing the “Rooney Rule” to increase board diversity. Similarly, the directors also supported hiring search firms that produce diverse candidate pools.
This survey, however, also found that director support for board diversity has faded a little since last year. While directors agree that there are benefits, only 38% in 2019 considered gender diversity “very important”, a 7% drop from 2018. Similarly, only 34% considered racial/ethnic diversity “very important”, compared to 26% in 2018 (an 8% decline). Male and female directors are also sharply divided on whether shareholders devote too much attention to board diversity. About 23% of female respondents disagreed, while close to 70% of male respondents agreed.