NYC Comptroller Stringer and Retirement Systems Announce Precedent-Setting Board/CEO Diversity Search Policies as part of Boardroom 3.0 Initiative

(New York, NY) — Today, New York City Comptroller Scott M. Stringer and the New York City Retirement Systems (NYCRS) announced the successful results of their first-in-the-nation initiative calling on companies to adopt a policy requiring the consideration of both women and people of color for director and CEO searches. The Comptroller’s Office has negotiated pioneering Board and CEO diversity search policies with 13 leading companies as part of Boardroom Accountability 3.0. These CEO and board diversity policies build on the “Rooney Rule” pioneered by the National Football League (NFL).

Launched in October 2019, Comptroller Stringer’s current Boardroom Accountability Project 3.0 seeks to make meaningful, long-lasting, and structural change in the market so that women and people of color are welcomed in the door and considered for director and CEO searches. Comptroller Stringer’s appeal included gender and racial/ethnic diversity and is the first time a large institutional investor called for this structural reform for both board directors and CEO’s.

“In 2020, there’s simply no excuse for everyone in the boardroom to look the same. Companies are strongest when their boardrooms and C-suites reflect the diversity that is America,” said Comptroller Stringer. “That’s why the New York City Retirement Systems are committed to working with our portfolio companies to increase diversity in their leadership—because that’s the only way to meet the business challenges of today and tomorrow. I applaud these boards for taking a stand and doing their part to create better representation at the top. Their commitment to diversity will create long-term shareholder value for the more than 700,000 active and retired City workers who rely on the NYCRS for their retirement security.”

The Comptroller’s Office has negotiated pioneering Board and CEO diversity search policies with 13 leading companies in response to shareholder proposals submitted as part of their Boardroom Accountability 3.0. The Boards at each of these companies have approved, and publicly disclosed, policies requiring the consideration of qualified women and racially/ethnically diverse candidates for director and external CEO searches. Many of the policies included explicit provisions that the Board will instruct any search firms they retain to include such individuals in their initial list or pool of candidates. Constructive engagement and the leadership exhibited by these companies led to the prompt withdrawal of the NYCRS’ shareholder proposals. The companies include:

• Activision Blizzard
• Dover Corporation
• Expedia Inc.
• Fastenal Company
• Genuine Parts Company
• Hilton Worldwide Holdings
• L Brands
• MarketAxess Holdings, Inc.
• Nektar Therapeutics
• Robert Half International
• Ross Stores
• UDR, Inc.
• Verisign

The 17 companies that received shareholder proposals for the spring 2020 proxy season are among the 56 companies that received a letter from Comptroller Stringer in in October 2019 requesting a board/CEO diversity search policy. The CEO diversity search policy is not intended to be a substitute for robust internal succession planning, although the NYCRS encouraged portfolio companies to maintain and disclose a process for fostering a diverse talent pipeline for executive management.

The Comptroller’s requested policy is based on the “Rooney Rule” in the NFL, which requires teams to interview minority candidates for head coaching, general manger jobs and equivalent front office positions. The policies do not dictate who should be hired, but instead widens the talent pool and requires a diverse set of candidates for consideration. While many companies already have similar policies governing director searches, the Comptroller’s Office believes that these are the first public companies to extend the policy to external CEO searches.

In further affirmation of Boardroom Accountability 3.0’s intended impact on market practice, after the public launch of the Comptroller’s Initiative, Regions Financial enacted a CEO diversity search policy, extending its existing Rooney Rule policy for director searches to also apply to searches for section 16 executive officers, including the CEO.

A large and growing body of empirical research suggests a positive correlation between board diversity and performance. Research by McKinsey, for example, suggests that companies with greater gender and ethnic board diversity have stronger financial performance. Similarly, MSCI research suggests that gender diverse boards have fewer instances of bribery, corruption, and fraud. Diverse boards can better manage risk by avoiding “groupthink,” challenging assumptions, and cultivating creative solutions.

The persistent lack of diversity in the business world is especially stark at the top. As of 2018, 66 percent of board members at Fortune 500 companies were white men. Another 17.9 percent were white women, followed by 11.5 percent men of color and 4.6 percent women of color. When it comes to executive leadership, as of May 2019, 6.6% percent of Fortune 500 CEOs were women, and there are similarly low numbers of people of color leading those companies.

When a pool of candidates includes a woman or person of color, it changes the status quo. A 2016 study published by the Harvard Business Review found that the odds of hiring a woman were 79 times greater when there were at least two women in the finalist pool, and the odds of hiring a minority were a staggering 193 times greater when there were at least two minority candidates in the finalist pool.

The Board of Directors at two additional focus companies — A. J. Gallagher and PACCAR – took half steps, adopting a policy governing only director searches, but not external CEO searches, which was a condition for any withdrawals of the shareholder proposal.  The U.S Securities and Exchange Commission permitted PACCAR to omit the NYCRS’ shareholder proposal from its proxy statement, while the proposal at A.J. Gallagher will go to a vote at the company’s annual meeting on May 12, 2020. The proposals will also go to a vote at Berkshire Hathaway (May 2nd) and Expeditors International of Washington (May 5), neither of which engaged meaningfully with the NYCRS to discuss the proposal.

About the Boardroom Accountability Project: 

At its inception, the Boardroom Accountability Project sought to make boards more diverse, independent and climate competent. In its first phase, NYCRS worked company-by-company to achieve the reforms that made “proxy access” a market standard in the U.S. Today, more than 600 U.S. companies—including over 70% of the S&P 500—have enacted proxy access bylaws, up from just six U.S. companies when the project began. This reform provides long-term investors with a powerful tool and the mere specter of a proxy access candidate is expected to make boards more responsive to shareowner engagement, particularly with respect to board composition, thereby limiting the need for its actual use.

Boardroom Accountability Project 2.0, launched in 2017, sought greater board transparency and requested that U.S. companies disclose the race and gender of their directors, along with board members’ skills and experience. The initiative pioneered the “Board Matrix” format for disclosing details about company board directors. In response to NYCRS engagement, companies began to disclose board matrices and also publicly committed to including women and people of color in their candidate pool for board searches. With the help of NYCRS, the number of the largest U.S. companies (i.e., Fortune 100) that now explicitly disclose their board members’ race has doubled from 23% to 45% in the last three years.

In further pursuit of key boardroom accountability objectives, last year the NYCRS revised their Corporate Governance Principles and Proxy Voting Guidelines and will oppose incumbent nominees who serve on a board’s nominating committee if “the board lacks meaningful gender and racial/ethnic diversity, including but not limited to any board on which more than 80% of the directors are the same gender.” According to the revised policy, “the Systems may integrate more explicit racial/ethnic diversity expectations in the future as reliable data become available and may increase the minimum expectation for gender diversity.”

Comptroller Stringer serves as the investment advisor to, and custodian and a trustee of, the New York City Pension Funds. The New York City Pension Funds are composed of the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System.

In addition to Comptroller Stringer, the New York City Pension Funds’ trustees are:

New York City Employees’ Retirement System (NYCERS):  Mayor Bill de Blasio’s Representative, John Adler (Chair); New York City Public Advocate Jumaane Williams; Borough Presidents: Gale Brewer (Manhattan), Sharon Lee (Queens), Eric Adams (Brooklyn), James Oddo (Staten Island), and Ruben Diaz, Jr. (Bronx); Henry Garrido, Executive Director, District Council 37, AFSCME; Tony Utano, President Transport Workers Union Local 100; Gregory Floyd, President, International Brotherhood of Teamsters, Local 237.

Teachers’ Retirement System (TRS):  Mayor Bill de Blasio’s Appointee, John Adler; Chancellor’s Representative, Lindsey Oates, New York City Department of Education; Natalie Green Giles; and Debra Penny (Chair), Thomas Brown and David Kazansky, all of the United Federation of Teachers.

New York City Police Pension Fund (PPF):  Mayor Bill de Blasio’s Representative, John Adler; New York City Finance Commissioner Jacques Jiha; New York City Police Commissioner Dermot F. Shea (Chair); Chris Monahan, Captains Endowment Association; Louis Turco, Lieutenants Benevolent Association; Edward D. Mullins, Sergeants Benevolent Association; Paul DiGiacomo, Detectives Endowment Association; and, Patrick Lynch, John Puglissi, Joseph Alejandro, and Anthony Cacioppo all of the Patrolmen’s Benevolent Association.

New York City Fire Pension Fund (Fire): Mayor Bill de Blasio’s Representative, John Adler; New York City Fire Commissioner Daniel A. Nigro (Chair); New York City Finance Commissioner Jacques Jiha;  Gerard Fitzgerald, President, Robert Eustace, Vice President, Edward Brown, Treasurer, and John Kelly, Brooklyn Representative and Chair, Uniformed Firefighters Association of Greater New York; Liam Guilfoyle, Captains’ Rep.; Paul Mannix, Chiefs’ Rep., and Jack Kielty, Lieutenants’ Rep., Uniformed Fire Officers Association; and, Peter Devita, Marine Engineers Association.

Board of Education Retirement System (BERS): Schools Chancellor Richard Carranza; Mayoral: Isaac Carmignami, Natalie Green Giles, Vanessa Leung, Gary Linnen, Lori Podvesker, Shannon Waite, Miguelina Zorilla-Aristy; Michael Kraft (Manhattan BP), Debrorah Dillingham (Queens BP), April Chapman (Brooklyn BP), Geneal Chacon (Bronx BP) and Peter Calandrella (Staten Island BP); and employee members John Maderich of the IUOE Local 891 and Donald Nesbit of District Council 37, Local 372.

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