Shareholder proposals dealing with gender and diversity are on the rise, according to a recent Equilar study on environmental, social and governance proposals among Russell 3000 companies from 2016 to 2018. Although representing only 6% of all ESG proposals over the past three years, proposals requesting items such as disclosure of greater board/workforce diversity, detailed pay reports broken down by race/gender, or information on company policies regarding the gender pay gap have veered upwards. Equilar notes that although support for these proposals increased by just one percent over the period 2016-2018, they increased by 25% between 2017 and 2018, likely indicating the start of an upward movement.
Driving the data is another important trend – the sharp increase in the number of proposals that were withdrawn by shareholders in 2018 as a result of company commitments made after engagement. According to ISS, only 36% of environmental and social (E&S) proposals that were filed made it to the ballot (the fewest in over 10 years) and 47% were withdrawn, while 16% were omitted. Of all E&S proposals that went to a vote, the second highest levels of median support were found in workforce diversity (36%). However, among proposals that were withdrawn, board diversity had the highest rate of withdrawal (76% up from 73% last year) with gender pay gap reporting in second place (69% up from only 36% last year) and workforce diversity close behind (68% up from 53% last year). Arjuna Capital, which targeted nine financial services companies, Pax World Funds, which targeted financial services and technology firms, and the NYC Comptroller and Pension Funds, which targeted insurance and healthcare companies, all withdrew the vast majority of their proposals after receiving company commitments to disclose activities related to gender pay equity.
The trend in shareholder support for gender and diversity proposals comes at a time when some venture capitalists, such as multi-stage VC investor SOSV, are considering "boilerplate clawback clauses" that would allow investors to fine portfolio firms whose senior employees engage in proven sexual misconduct. Although company clawback policies that permit clawbacks in the event of a violation of a violation of company conduct or ethics rules may cover such circumstances, it would not be surprising to see similar language pursued at portfolio companies by certain pension funds whose clients are increasingly concerned about the practices and ethics of the companies in which they invest.