Providing equal pay for all employees is an issue that investors have challenged companies on in recent years, and Nike is the latest company to face a shareholder resolution calling for greater transparency on pay equity for female and minority workers. The Nike board has been forced to decide on the merits of operating within the letter of the law versus adjusting to changing governance standards in an increasingly challenging economic environment. Many corporate boards will face similar decisions regarding issues involving ESG.
According to a Reuters report, the resolution, filed by Arjuna Capital in July, asks Nike to produce an annual report on median earning gaps for female and minority employees that includes “the company’s associated wage policy and risks related to recruiting and retaining diverse talent.”
Nike is recommending that shareholders vote against the resolution at its shareholder meeting in September. However, fighting against this resolution carries risks the company might want to consider.
According to the Reuters report, Nike has set a goal of reaching “100% pay equity and expanding the representation of racial and ethnic minorities in director-level roles and above” by 2025. So, from the outside looking in, it appears the company has good intentions concerning reaching pay equity throughout the organization. However, the shareholder resolution asks for greater transparency as the company works toward its goal of 100% pay equity—and the board is resisting. Is this resistance worth the potential risk to the company’s relationship with its workforce and its reputation with its customers and the communities in which it operates?
The Nike board argues that the company already provides information on pay gaps between the earnings of male and female workers and white and non-white workers in similar positions and with comparable levels of experience. However, the information that Nike reports for its U.S. workforce differs from what it reports for its U.K. workforce.
Due to differences in legal requirements, information comparing the median wages of minority and female employees with non-minority and male employees as a percentage difference is reported for U.K. workers, but not for U.S. workers. Nike is complying with all U.S. and U.K. laws regarding disclosures on this issue; however, now that shareholders have challenged the company on what appears to be an inconsistency in reporting, there could be additional risks. Corporate board members may want to consider the following should their company face similar challenges in the future:
• Reputational harm to the company. Nike has a great reputation with its customers and employees. Anything suggesting that the company is not treating its female and minority employees fairly could damage that reputation and cause a decrease in sales and potential drop in stock price. Furthermore, being branded as a company that does not pay female and minority workers fairly will negatively impact company recruitment and retention efforts.
• Potential lawsuits? If the resolution doesn’t get Nike to release more information on its pay gaps, the next step may be a lawsuit. Since Nike is already providing greater transparency on pay gaps in the U.K., it is reasonable to assume it can do the same in the U.S. Fair wage advocates will question why the company “just won’t do it”—which may lead to stepped up efforts to find out why. Arjuna asked Nike for similar disclosures in 2021 and was rebuffed. Companies have been sued in the past for publicly stating that they are working toward ESG goals, but then failing to demonstrate that they are making good faith efforts and progress toward those goals.
• Victory with the erosion of trust. Corporate board members may need to consider the level of contentiousness the board may be creating with shareholders and the communities their company serves. Ultimately, boards need the trust of shareholders to effectively execute many of their plans, so being unnecessarily uncooperative on smaller issues may affect shareholder buy-in on larger issues down the road. The risk here is that the Nike board could win its effort to defeat this pay equity resolution but lose the trust of shareholders by giving the appearance of being unfair (even though the board is operating legally within its rights under the law). Shareholders are constantly judging the decision-making of board members. How much value will the Nike board gain in this fight with shareholders?