This year, some may recall that ISS began including information about board diversity in proxy research reports. In 2022, ISS will take things a bit further by issuing “against” or “withhold” recommendations for nominating committee chairs (or other directors on a case-by-case basis) of companies in the Russell 3000 or S&P 1500 indexes, where the board has no apparent racially or ethnically diverse members. ISS already had a similar process in place relating to board gender diversity.
An Aon blog provides a reminder that subjective judgment may come into play with ISS data on director diversity. To help avoid “against” recommendations, this off-season would be a good time to revisit ISS’s research report commentary about a company’s board diversity or lack thereof. ISS commentary about board composition could differ from what a company understands about the makeup of its board. Here’s an excerpt:
We recommend that all public companies — even companies with boards currently thought to be sufficiently diverse — carefully examine the written analysis of director elections in their 2021 ISS report to determine whether it includes any indication of a lack of racial or ethnic diversity on the board. Additional concerns may arise in harmonizing ISS’ definitions of diversity with those of other entities. For example, California identifies LGBTQ+ directors as diverse[2], while ISS does not. Meanwhile, NASDAQ does not consider directors of Middle Eastern descent as racially or ethnically diverse[3] but ISS does[4].
Companies may wish to consider including in their proxy statement a Board Diversity Matrix to clearly indicate the level of gender and racial/ethnic diversity of the board of directors. Firms may also consider providing language around composite board diversity percentages without publicly identifying individual directors.
-Lynn Jokela, TheCorporateCounsel.net July 6, 2021
