Issue link: https://digital.shearman.com/i/1035494
Shearman & Sterling LLP 22 | Board Diversity and The Skills Matrix Review proxy disclosures regarding skills and attributes required for board service to ensure that those disclosures reflect the board's view of board diversity Review each director's candidate profile to ensure that diversity characteristics are appropriately presented Establish the board's perspective on a strategy toward increasing diversity on the board 2 3 1 Nominating and governance committees should: diversity on the board has occurred. And it is not just the NYCC pushing for results. Companies are receiving shareholder proposals that would require the board to include qualified women and minority candidates in the list of possible director nominees. And, in the face of consumer, employee and investor reactions to board diversity issues, companies are finding it very difficult to oppose such shareholder proposals. The largest institutional investors have also been increasingly flexing their muscles on board diversity. BlackRock and State Street, for example, actively support shareholder proposals targeting board diversity, such as proposals seeking board reports on efforts taken to nominate diverse candidates to the board. Equally as important, nominating committees that are not making progress towards refreshing their boards with diverse director nominees have seen votes against their members in annual director elections. The proxy advisory firms, Glass Lewis and ISS, have also spoken more forcefully about the importance of boards taking affirmative steps to address diversity on the board. In fact, Glass Lewis has stated that beginning in 2019 it will recommend a vote against the chair 25 companies of the Top 100 Companies were targeted by the Board Accountability Project Of the 75 Top 100 Companies that were not targeted by the Board Accountability Project: 38 companies already presented some form of director skills matrix in their 2017 proxy statement and 13 companies added a director skills matrix in their 2018 proxy statement WHAT SHOULD BOARDS DO NOW? It is important for boards to take meaningful steps towards board diversity in the near term. A director skills matrix or a report will likely only be a short-term fix. Institutional investors will increasingly demand more. Review the search process used to identify new board candidates to assess whether meaningful steps towards board refreshment and increased diversity can be achieved using the current sources of new directors Set diversity goals for the board and share those goals, and the efforts that are being taken to achieve them, with key shareholders as part of an active dialogue before the proxy season begins 4 5 transparency regarding board quality, diversity and refreshment" and that the activities of the NYCC are "changing boardroom culture" that is "leading companies to cast a wider net for directors without sacrificing quality." In the case of the proxy access effort, success was not only evidenced by the adoption of proxy access by those companies that were targeted by the NYCC but, more significantly, by the number of companies that adopted proxy access in response to a recognition that the tide had changed – proxy access had become a governance best practice to the largest institutional investors. Will the director skills matrix become a proxy disclosure best practice? The NYCC appears to be pushing it. The NYCC believes it was successful in getting more than half of the targeted companies to improve their disclosures and it is ready to use shareholder proposals (or the threat of one) to push more companies for enhanced disclosure. The real message for boards, however, is the importance of board refreshment and demonstrating to shareholders that meaningful progress towards achieving of the nominating committee for larger companies with no female directors. Gender diversity is also being fueled by state legislative actions proposing quotas for female representation on the board.