Now in its fourth edition, Ferguson Partners’ 2021 REIT Diversity Report continues its original tracking of gender diversity across the Boardroom while expanding upon last year’s tracking of Black executives and Directors to include broad representation of minorities and underrepresented communities.
Diversity, Equity, and Inclusion (DE&I) has continued to garner widespread attention amongst a variety of constituencies and the definition and means for evaluating diversity has become more diverse in and of itself.
Over a span of just four years, DE&I has quickly evolved from considerations of gender diversity across the Board room to all forms of diversity including gender, race, ethnicity, and sexual orientation – and not just at the Board level, but also across executive leadership and company employees as a whole.
Definitions of diversity, requirements of such, and disclosure items have sharply gained momentum and are now a focal point across institutional investors, proxy advisory firms, state law, and the Securities and Exchange Commission (SEC) and NASDAQ.
Recent developments over the past year as well as announced 2022 requirements include, but are not limited to:
Major institutional investors such as State Street Global Advisors and BlackRock, amongst others, have announced that in making voting recommendations, they will be evaluating companies based on both the disclosure and composition of Board diversity. State Street has already announced that starting in 2022, they will vote against the Nominating and Governance Chair at S&P 500 companies that do not have at least one director from an “underrepresented community” on their Board.
Proxy Advisory Firm
Influential proxy advisory firm Institutional Shareholder Services (ISS) has announced that beginning in 2022 they will recommend withholding a vote, or voting against, the reelection of any chair of a nominating committee, or other directors on a case-by-case basis, where the company’s Board has no apparent racial or ethnic diversity (this beyond their existing gender diversity policy).
A California Assembly Bill (AB 979), signed in September 2020, is set to become effective by year end 2021 and will require a publicly held corporation in California to have a minimum of one director from an underrepresented community. A director from an “underrepresented community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or trans-gender. Other states such as Colorado, Illinois, Pennsylvania, and Washington, have passed legislation that do not go so far as mandating, but encourage Board diversity and related disclosures.
Securities Exchange Commission (SEC) and NASDAQ
In August 2021, the SEC approved new listing rules submitted by NASDAQ that will require most NASDAQ-listed companies, other than exempt entities and companies with boards consisting of five or fewer members, to:
- Have at least two self-identified diverse members of its Board of Directors; or explain why the company does not have the minimum number of directors on its board who self-identify as diverse.
- Of the two self-identified diverse directors, at least one director must self-identify as female and at least one director must self-identify as an underrepresented minority and/or LGBTQ+.
A number of companies not only measure and track diversity across their employee base, but now also hold executives accountable by incorporating these metrics into some form as a metric in incentive programs. Careful calibration of this goal is required for appropriately evaluating improvement in this area.
Many other companies now use diversity metrics within compensation plans, including (but not limited to): Allstate, American Express, CVS, IBM, Intel, Microsoft, Prudential, Uber.
For questions or further information, please contact Jeremy Banoff.