State Street insists on board diversity disclosure

State Street Global Advisors is the latest financial institution to insist that firms disclose the racial and ethnic composition of their boards, applying further pressure on companies to diversify their boards. 

In a letter to CEOs, State Street Global Advisors’  President and CEO Cyrus Taraporevala called on FTSE 100 and S&P 500 companies to disclose the racial and ethnic composition of their boards. This year, the investment arm of State Street said it is only requiring companies to report on board and workforce diversity. However, failure to disclose racial and ethnic composition of their boards and workforces in 2021 will result in “a vote against the Chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100”, wrote Taraporevala. 

But from 2022, companies must have at least one director from an underrepresented community on their boards.  If not, it will vote against the Chair of the Nominating & Governance Committee. Additionally, from next year, the firm will vote against the Chair of the Compensation Committee at firms that do not disclose responses to their EEO-1 Survey. (This is a compliance survey mandated by US federal statute/regulations, which requires employment data to be categorised by race/ethnicity, gender and job category). 

PUSH FOR DIVERSITY

The announcement follows similar moves in the financial industry by Nasdaq and Goldman Sachs recently. In December, Nasdaq announced that it would require all companies listed on its exchange to have at least two diverse directors on their boards. If not, CEOs will be required to explain why it could not be achieved, as reported. The move has yet to be approved by the Securities and Exchange Commission. 

Back in January last year, Goldman Sachs’ CEO David Solomon stated that the bank would not take companies public unless they had at least one diverse board member. The bank’s push for more diversity on boards applied to companies in the US and Europe from 1st July 2020. This year, however, Goldman Sachs expects to see two diverse board members, as reported.

DISCLOSURE –  A STARTING POINT

“Disclosure is just a starting point,” Taraporevala stated. “Our investee companies should be prepared for thorough engagements on these and related subjects in the coming year, and we will analyse shareholder proposals accordingly.”

However, Taraporevala admitted that, “when it comes to racial and ethnic diversity, every company is on a journey, and we all have work to do. That includes us at State Street”. In a bid to increase his commitment to racial and ethnic diversity, he said the firm will disclose the racial and ethnic composition of the board and its EEO-1 data this year. “We are also advancing 10 actions to eliminate racial inequity in our organisation, including tripling our Black and Latinx leadership and increasing our spend with minority businesses over the next three years,” Taraporevala added. Additionally, the board will hold its “senior management accountable for our progress”.

In 2021, State Street’s priorities will be focused on the systemic risks associated with climate change, as well as the lack of racial and ethnic diversity. Taraporevala said State Street plans to use its voice and vote to hold boards and management accountable for progress on providing enhanced transparency and reporting on these two critical topics. Check out State Street’s guidance on enhancing racial and ethnic diversity disclosures here.