We’re in the midst of the first proxy season in which ISS is flagging companies that have no apparent racially or ethnically diverse directors – next year, they’ll start making adverse voting recommendations. Because companies aren’t required by SEC rules to disclose diversity characteristics, ISS has been urging companies to either include the info in proxy statements or provide it directly to the proxy advisor.
Now, in its recently updated “Policies & Procedures” FAQs, the proxy advisor has also explained how it’ll go about making ethnicity assessments if companies don’t volunteer the info:
Where definitive information is not disclosed, ISS classifies directors — largely along standards put forth by the U.S. Office of Management and Budget’s Directive 15 — by carefully assessing race and ethnicity through a variety of publicly available information sources. These include company investor relations websites, LinkedIn profiles, press releases, leading news sites, as well as through identifying affiliations between individuals and relevant associations and organizations focused on race and/or ethnicity, such as the Latino Corporate Directors Association.
The FAQs also list the ethnic & racial categories that ISS uses in its database, how each category is defined, and what qualifies as “diverse” under the voting policies. And, they clarify that ISS will recommend against nominating chairs of insufficiently “diverse” boards – even if that director is themselves from an under-represented community – because the voting recommendation is intended to convey dissatisfaction with the person’s action taken in that role, rather than as a call for the person to step off the board.
ISS seems to be devoting a lot of resources to making sure its diversity voting policies will be accurately applied – presumably for the benefit of its investor clients who find this information valuable. And although a blog from Keith Bishop raises the question of whether a company could face a securities law claim if its directors insincerely self-identify as a member of an under-represented group – practically speaking, companies who want to get a favorable ISS recommendation for their director elections would probably want to make diversity info easy to find.
-Liz Dunshee, TheCorporateCounsel.net May 13, 2021
