Prepare for investors’ questions on diversity

By Debra Cope

During proxy season—the period from mid-April to mid-June when most public companies hold their annual meetings—investors are expected to remain highly focused on two issues: diversity and climate, according to Hannah Orowitz, senior managing director for corporate governance at Georgeson. In particular, the focus on racial and ethnic diversity as opposed to gender diversity is accelerating across the board, she said at a webinar on preparing for the 2022 proxy season.

This article originally appeared in the May/June 2022 issue of ABA Banking Journal Directors Briefing. Subscribe now.
She noted that in 2021, 27 percent of Russell 3000 Index companies disclosed information on board racial and ethnic diversity—and 79 percent of their directors were white. She said she believes that figure is probably high for the Russell 3000 as a whole, since the companies with the best diversity stories to tell were the likeliest to disclose the data in 2021.

As public companies prepare for their annual meetings, there are a number of questions boards should be discussing and preparing to explain to investors, she added.

  • Does the board consider a diverse slate for all nominations?
  • How are diversity characteristics of the board and the company’s diversity, equity and inclusion approach overall aligned with long-term strategy and the business model?
  • What is the number of directors with racially and ethnically diverse backgrounds?
  • How does the board oversee human capital management and DEI?
  • What are the company’s diversity goals, and how are they managed and measured?

Although smaller companies may not be in the spotlight’s glare, they should be alert to the developments occurring at larger companies, she added. This is because investor expectations have a tendency to “cascade over time.”

Orowitz offered some additional steps for companies to consider as they head into proxy season.

  • Consider enhancing disclosure regarding director skills and strengths.
  • Carefully review investor feedback relating to board quality, effectiveness and composition.
  • Assess activism vulnerability in general.
  • Review advance notice bylaw requirements and consider the need for updates.
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About Author

Debra Cope is editor-in-chief of ABA Banking Journal Directors Briefing.