Boardroom Accountability Project 3.0
Comptroller Stringer launched the third phase of the Boardroom Accountability Project in October 2019 with a new first-in-the-nation initiative calling on publicly-traded companies to adopt a policy requiring the consideration of both women and people of color for every open board seat and for CEO appointments, a version of the “Rooney Rule” pioneered by the National Football League (NFL). Comptroller Stringer’s newest initiative seeks to make meaningful, long-lasting, and structural change in the market practice so that women and people of color are welcomed in the door and considered for every open director seat as well as for the job of CEO.
To launch the initiative, Comptroller Stringer sent a letter to 56 S&P 500 companies, regardless of the current diversity of their board or CEO, which do not currently have a Rooney Rule policy – and will file shareholder proposals at companies that lack apparent racial diversity at the highest levels. A number of their peers including Alliance Data Systems, Amazon, Costco Warehouse, Facebook, General Electric, Jeffries Financial Group, and W.W. Grainger currently have a Rooney Rule policy with respect to board member searches, but not CEO searches.
To read more about the announcement, click here.
Boardroom Accountability Project 2.0
Launched in early September 2017, Comptroller Stringer and the NYC Pension Funds escalated their push for corporate board diversity, independence, and climate competence with the Boardroom Accountability Project 2.0. – the second phase of the Comptroller’s trailblazing “Boardroom Accountability Project” which was launched in 2014 to give investors a real voice in who sits on corporate boards. This next phase of the campaign pushes for greater corporate board diversity and transparency reforms – particularly calling on companies to adopt a form of disclosure pioneered by the Comptroller’s office called the “Board Matrix,” table describing the skills, gender, and race/ethnicity of individual directors on the board; and engagement with independent directors regarding “refreshment” opportunities to bring new voices and viewpoints into the boardroom. BAP 2.0 has already delivered unprecedented disclosures at dozens of major U.S. companies: as of October 2019, the number of companies disclosing this information has doubled. Additionally, 62 portfolio companies have brought on 77 diverse directors to their boardrooms.
To read about results from Boardroom Accountability Project 2.0, click here.
To view a “Matrix Compendium” reviewing best practices in board matrices, click here.
For more information on the initiative, click here.
Boardroom Accountability Project 1.0
Launched publicly in November 2014 by New York City Comptroller Scott Stringer and the New York City pension funds, the Boardroom Accountability Project is a groundbreaking campaign to give shareowners the right to nominate directors at U.S. companies using the corporate ballot, known as “proxy access.” Proxy access helps boost long-term corporate accountability by ensuring that large, long-term shareholders like the City’s pension funds have the ability to nominate directors to company boards – boosting corporate accountability and giving New York City pensioners a stronger voice in the long-term oversight of the companies the Systems invest in, including on issues related to the diversity of board members, the company’s approach to climate change risks, and treatment of employees. The ability to nominate directors is a fundamental shareowner right and the starting point for this transformation.
Comptroller Stringer and the City’s pension funds launched the initiative by submitting proxy access shareowner proposals to 75 companies at once in fall 2014 and working in close collaboration with other major institutional investors, to invigorate institutional investors’ efforts to enact proxy access across the U.S. market.
The proposals requested a proxy access bylaw permitting shareowners that have collectively held 3% of the company for at least three years to nominate up to 25 percent of the board using the company’s ballot. The terms are identical to those included in a rule enacted by the Securities and Exchange Commission (SEC) in 2010 that provided proxy access at all U.S. public companies, but that was vacated by a federal court on procedural grounds shortly thereafter.
The 75 companies included companies that failed to align executive compensation with business performance, companies with little or no apparent gender or racial diversity on their board, and carbon-intensive energy companies that are among the most vulnerable to long-term business risks related to climate change.
The 75 shareowner proposals produced very strong results. Two-thirds of the proposals that went to a vote received majority support. And the vast majority of engaged companies had enacted proxy access bylaws within the following year, including Chevron, Hasbro, Occidental Petroleum, Staples and Priceline.
Since the launch of the Boardroom Accountability Project, the Comptroller’s Office and the New York City Pension Funds have continued to advocate adoption of meaningful proxy access provisions across the market, by filing shareowner resolutions, engaging in dialogue with portfolio companies that are proactively moving to enact what has become recognized as “best practice,” and publicly promoting the benefits of greater director accountability in our financial markets.
In response to continuous engagements as well as broad and diverse investor support, over 600 U.S. companies have enacted proxy access bylaws, including an estimated 70% of the S&P 500, as of July 2019, with many more anticipated in the near future. This marks a roughly 10,000% increase in the numbers of companies that had proxy access in 2014 – just six.
The Current System
At most corporations, CEOs and/or directors handpick nominees for election to the board. Usually, they pick themselves and their allies, and the shareowners’ right to nominate directors to run against these individuals is largely illusory. Because corporate directors typically are elected by a plurality of votes in uncontested elections, a director who owns one share of a company can re-elect him- or herself, even if every other shareowner votes against that person. Of 51 directors who failed to receive majority votes in 2016, 44 remain on the board as “zombie directors,” unelected but still serving.
About Proxy Access
Proxy access is the ability for shareowners to nominate directors to run against a company’s chosen slate of board of directors and have those directors listed on the company ballot that is mailed to all shareowners.
The shareowner proposals submitted by Comptroller Stringer and the New York City pension funds request a bylaw to give shareowners who meet a threshold of owning three percent of a company for three or more years the right to list their director candidates, representing up to 25 percent of the board, on a given company’s ballot. The proposals will be subject to shareowner votes at those companies that do not agree to the request.
Such a high bar of long-term ownership – 3% for three years – ensures that short-term investors will not be able to manipulate corporate governance at the expense of those seeking long-term value.