In recent weeks, about 140 different companies which have already enacted proxy access bylaws in response to a New York City Comptroller-led campaign have received a new letter from the New York City Comptroller's Office seeking a discussion on board of director qualifications in effort to "promote greater board quality and accountability". The "Board Accountability Project 2.0" is the Comptroller's latest effort to push for governance changes and increased direct engagement with boards, at large companies. Companies which received the letter were selected as targets due to their previous implementation of proxy access at the behest of the Comptroller's office. Unlike the proxy access letter which requested a change to the company’s bylaws, the Comptroller's new push asks for the disclosure of a "meaningful director qualifications matrix identifying each director's skills, expertise and attributes, as well as each such individual's gender and race/ethnicity." (See a copy of the Comptroller’s suggested matrix here.) According to the Comptroller’s letter, the matrix will enable investors to better:
- "Assess how well suited individual director nominees are for the company";
- "Identify any gaps in skills, experience or other characteristics"; and
- "More fully exercise our voting rights"
The Comptroller cites the National Association of Corporate Directors for support and notes that about 16% of S&P 500 companies already use a skills matrix. The letter states that the Comptroller’s office would like to engage on the issue with the targeted companies regarding the use of the board matrix as well as the letter recipient's process for evaluating directors on an ongoing basis, including procedures for requesting a board member step down. The engagement request seeks to touch on even more intimate topics such as having the company's director search firms solicit the Comptroller’s office for director suggestions and, finally, a desire to "establish a more structured process [to board refreshment], pursuant to which [the Comptroller] and other significant shareholders may provide to your Committee the names of potential board candidates, on an ongoing basis" (a kind of proxy access-lite).
The NYC Comptroller's letter is the most direct a major shareholder has been in desiring to be involved in the ongoing evaluation and selection of members of a company's board. The letter is a follow-up to an SEC rulemaking petition the Comptroller’s office submitted jointly in 2015 seeking mandatory disclosure by all public companies. The move is an admitted acknowledgment that that petition will not receive action and underscores the continued desire of some major pension funds to have a direct role in the oversight and even day-to-day management of the companies in which they invest.