Updated ISS Policies Show Gender Diversity Remains A Front-Burner Issue

With Institutional Shareholder Services Inc.’s recent announcement of a new voting policy with respect to U.S. companies with no female directors serving on their boards, the issue of board diversity remains front and center as directors make plans for 2019.

The new ISS policy announced last month indicates that after a year-long grace period to allow boards time to recruit qualified female candidates, adverse voting recommendations may be issued against nominating committee chairs at boards with no female directors.

TK Kerstetter, Corporate Board Member’s Editor-at-Large and the CEO of Boardroom Resources, says that the new voting policy announcement from ISS isn’t a huge shocker, given that the issue has been a focal point for boards in recent years.

“The voting guidelines that the ISS has taken is no real surprise,” Kerstetter told Corporate Board Member. “They are following suit for what other organizations and institutional investors have done, the leader being State Street, followed by the New York City pension funds. If [boards] aren’t aware of what investors are doing, then they must be living under a rock because there has been so much publicity. And if you’re a board today with no women directors and don’t think that you’re going to be targeted, then not only are you living under a rock, but you’re also blind to what’s going on around you.”

According to a statement from ISS, in 2020, “ISS will generally issue recommendations against the election of the chair of the nominating committee, but on a case-by-case basis, the election of other directors who are responsible for the board nomination process may be impacted (for example, at companies with no formal nominating committee). ISS will also consider case by case any exceptional circumstances explaining the absence of board gender diversity.”

The new policy will be effective for held meetings on or after Feb. 1, 2020, and will be applicable for companies in either the Russell 3000 or S&P 1500.

California’s adoption of a new law earlier this year mandating that public companies have at least two female directors by the end of 2021 if a company has five directors and three if the company has six or more directors also illustrates the attention regulators are paying to this issues. In California, violators will face fines of at least $100,000 and up to $300,000 for multiple violations of the statute.

But true board diversity goes beyond gender, Kerstetter says, and that’s where measurement and mandated requirements for boards can begin to get tricky.

“There have been statements from all institutional investors about gender representation on boards, and really it’s more than gender,” Kerstetter says. “Gender is able to be easily measured. It’s harder to measure other diversity, like people of color.”