- Only one in four of the largest 100 companies specify the demographic traits of individual board members, a survey revealed, despite rising pressure for detailed diversity reporting from investors and the Securities and Exchange Commission (SEC).
- “The vast majority of companies are disclosing aggregate diversity information for the board, but only about a quarter are providing director-specific diversity information, which is data that companies are increasing[ly] being pressured to disclose,” Shearman & Sterling said. The companies surveyed spanned several sectors, from healthcare and technology to energy and industrials.
- Only one in three of the biggest companies provide data on employee diversity even “in the midst of new SEC requirements for companies to provide disclosures on human capital management,” Shearman & Sterling said. Only 15% of the companies reported data on employee turnover.
The SEC in August backed a Nasdaq rule requiring race and gender diversity on corporate boards.
Nasdaq requires listed companies to include on their boards at least one woman director and someone who is a racial minority or who self-identifies as lesbian, gay, bisexual, transgender or queer. Companies need to regularly report on the demographics of their boards, and those that fail to justify non-adherence to the standard in writing would risk delisting.
SEC Chair Gary Gensler said agency support for the Nasdaq rule aligns with the preferences of investors, who are increasingly focused on environmental, social and governance (ESG) goals when committing their capital.
Global ESG investment soared 55% to $35.3 trillion last year from $22.8 trillion in 2016, according to the Global Sustainable Investment Alliance. The total will probably exceed $50 trillion by 2025, making up more than one third of the projected $140.5 trillion in global assets under management, according to Bloomberg.
The rules “reflect calls from investors for greater transparency about the people who lead public companies,” Gensler said in a statement. The standards “will allow investors to gain a better understanding of Nasdaq-listed companies’ approach to board diversity, while ensuring that those companies have a flexibility to make decisions that best serve their shareholders.”
Gensler has also asked SEC staff to recommend disclosure mandates on specifics such as employee compensation, turnover and diversity, calling workforce a critical asset of growing interest to investors.
“I think that investing in a company, the human capital, the workforce is a key asset,” Gensler said in August in testimony to the Senate Banking Committee. “I’ve always found that if you’re going to buy a company or sell a company — when I was doing that at Goldman Sachs — that people really wanted to have a thorough review of that workforce and its ups and downs.”
Gensler has said a disclosure regime could include details on benefits, demographics, skills and development training, and health and safety. The SEC in June listed “human capital management disclosure” on a list of potential rulemaking.
The push for workforce disclosure coincides with stepped-up efforts by CFOs and their C-suite colleagues to promote staff diversity.
Nearly three out of five CFOs are planning in coming months to push diversity and inclusion (D&I) programs within their companies through such efforts as leadership mentoring programs for women and minorities, PwC said, citing a survey of financial executives.
“CFOs are putting their money where their mouth is around people, with more than half making investments in D&I training (57%),” PwC said in a report on a survey in July of 128 financial executives at Fortune 1000 and private companies.
U.S. businesses have pledged support for DEI training and related programs since the murder of George Floyd while in police custody in May 2020.
In October 2020 the Business Roundtable, an organization of CEOs at many of the largest U.S. companies, committed to regularly review pay equity and provide more information about the racial diversity of company leadership and staff. Roundtable companies generate more than $9 trillion in annual revenues and employ 20 million workers.
The results of the Shearman & Sterling survey suggest that progress by the largest companies in disclosing workforce traits is mixed. Only 36% of the companies report employee gender, and only 33% disclose employee race or ethnicity.
“Disclosures by the top 100 companies were largely qualitative, not quantitative,” Shearman & Sterling said.
The SEC will probably “expand its review and comment on human capital resource management disclosure in annual reports, as well as comment both in registration statements and annual reports on matters beyond simple compliance,” the firm said. “Companies need a system in place to tackle this disclosure — a system of people to manage and oversee human capital resources and data collection and analysis.
Shearman & Sterling reviewed annual proxy statements, charters and bylaws, board committee charters, corporate governance guidelines, and corporate social responsibility reports and websites at companies ranging from Apple, JP Morgan Chase and Humana, to Exxon Mobil, Tesla and Walmart.