Should Boards Resist Transparency On Race, Gender Issues?

The mounting shareholder proposals requesting more transparency suggest this isn't an issue boards will be able to ignore in 2022.
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Shareholders appear to care a great deal about race and gender, evidenced by proposals that continue to be filed in 2022 asking boards for transparency on issues regarding race and gender.

Disney and Apple are among companies that have already received such proposals. With recent controversies involving the National Football League’s hiring practices regarding Black coaches and President Joe Biden’s plan to appoint a Black woman as a Supreme Court Justice, it seems as though race and gender concerns will likely be in the headlines for most of this year. Corporate boards should consider whether issues of race and gender may generate shareholder proposals at their company and how they would handle such an occurrence.

Disney has received a shareholder proposal asking the company to produce a “Pay Equity Report” that would provide greater transparency about pay gaps across race and gender at the entertainment company. Last year, activist investor Arjuna Capital ran race and gender pay equity campaigns against multiple corporations with enough success to plan for additional campaigns this year, including the campaign against Disney.

Apple reportedly has received proposals requesting the company create a pay equity report and a proposal requesting it conduct a civil rights and diversity audit (also referred to as a racial justice audit). The tech giant has recommended that its shareholders vote against those proposals. A trio of shareholder groups that control a reported 23 million shares of Apple have banded together to submit the proposals challenging the company on its treatment of minorities and women. Expect other investors to watch the outcomes of these campaigns with an intent to copy them if they are effective.

For shareholders, it appears that some companies that have said that they believe in diversity and fairness may not be living up to those words. In cases where diversity and fairness are not clearly evident, investors have apparently lost faith and are now using shareholder proposals to get tangible evidence that steps to diversify their workforces and pay people more equitably are being taken.

In addition to the pressure from these shareholder actions, boards should be aware that starting in 2022, institutional investor State Street will begin voting against the re-election of compensation committee chairs of S&P 500 companies that do not disclose EEO-1 reports—something it announced last January. Also, the SEC is expected to seriously consider making the disclosure of EEO-1 reports that document the gender, race and ethnicity of employees across job categories a requirement for publicly traded companies. A final decision on that may come this year or next.

These issues are not going away. Corporate boards may want to consider this a preview of the types of stakeholder concerns that will keep bubbling to the surface as businesses continue trying to transition back to “regular” operations in the aftermath of the Covid-19 pandemic. The pandemic has made the well-being of workers more important than it has been in the past; and these worker-related proposals—although race- and gender-based—could very well have a broader impact. Companies may no longer be able to assume that the racial composition of a company’s workforce, and the level of compensation a company delivers to its workers, does not really matter if the company remains profitable. There is growing evidence that these things do matter to shareholders.

Disney and Apple are well-known companies with excellent reputations that appear to be betting that fighting these proposals will not harm them. We will soon find out how that bet turns out.


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