Corporate Governance

BOARDROOM ACCOUNTABILITY PROJECT 2.0: FOCUSING ON BOARD DIVERSITY AND REFRESHMENT By Lona Nallengara On September 6, 2017, the New York City Comptroller (NYCC) launched the Boardroom Accountability Project 2.0 – a broad-based initiative aimed at putting pressure on large public companies to "refresh" their boards to make them "more diverse, independent and climate-competent." This new effort comes on the heels of the initial phase of the NYCC's Project in 2014, which focused on proxy EXPECTED IMPACT The NYCC appears to want to change the way companies select directors in an effort to further the stated goal of the second phase of the Boardroom Accountability Project to "make boards more diverse, independent and climate competent, so that they are in a position to deliver better long-term returns WHAT IS 2.0? The NYCC sent letters to 151 U.S. public companies, including 23 of the Top 100 Companies. The letter asked the chairs of the nominating and governance committee of each of the companies to: The request for the matrix is similar to the March 2015 rulemaking petition submitted to the SEC by the NYCC and eight other public pension funds requesting a rule mandating director demographic, skills and experience matrix disclosure in the proxy. 1 Provide the NYCC with enhanced disclosure outlining each director's race / ethnicity, gender and sexual orientation, along with each director's skills and experience, in a matrix format Engage in a discussion with the NYCC on board refreshment, including reviewing the company's director matrix, how the matrix aligns with the company's strategy and the board's director evaluation process 2 WHAT SHOULD BOARDS DO NOW? As we saw with proxy access, we expect this latest initiative by the NYCC to spark substantial interest from other public pension funds and large institutional shareholders. Although the letter was only sent to a limited set of companies, all public companies should expect renewed focus on board diversity, director assessment processes and board refreshment. nominating and governance committees should assess whether they have adequately considered and articulated the skills and attributes that their companies need in their directors and whether the process the board uses to evaluate directors against these skills and attributes needs enhancement or if the disclosure regarding the process itself needs additional transparency. Boards should also assess the disclosures provided on director skills and attributes in light of the matrix framework requested by the NYCC. Facilitate the NYCC's involvement in the board's process to identify potential director candidates 3 access and has been discussed in previous editions of this Survey. As highlighted in the article on page 18, there has been a dramatic increase in the adoption of proxy access by-laws in recent years, which has given shareholders the ability to influence the composition of boards through an ability to nominate director candidates. Through the Boardroom Accountability Project, the NYCC has been a leading force in the expansion of proxy access in the U.S. and among the Top 100 Companies. for investors." The NYCC is clearly using the implicit threat of being able to nominate proxy access candidates to encourage companies to engage in a process that will provide the NYCC with the opportunity to recommend "qualified, diverse and independent" candidates for election to company boards. INSIGHTS Shearman & Sterling 24 | Boardroom Accountability Project 2.0

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