Tony Maldonado was just 15 when he posed a question that’s nettling some deep pockets in the stock market: “How come everyone on the board is white?”
While surfing the web three years ago, the teenager discovered the board at Apple, like the boards of many major corporations, was, as his dad puts it, a bit “vanilla”.
Apple does have an African-American man and an Asian-American woman on its eight-person board, but, on February 26, stockholders will vote on a milestone resolution pushing for even more racial diversity among its leaders. Maldonado’s father, also Tony, sponsored the plan, the first of its kind in the United States.
Trying to muscle Apple might sound starry-eyed, and the company calls the proposal “unduly burdensome and not necessary”. But it turns out the Maldonados, who are of Dominican ancestry, have seized on an issue that’s gaining the attention of a growing number of institutional investors.
With little fanfare, diversity in the boardroom — or rather, the lack of it — has been embraced by more institutions as a metric for making investment decisions.
The shift is noticeable. In 2012, US investors controlling a combined US$417 billion of assets said they considered diversity. Just two years later, that figure was US$578bn — a 40% increase, according to US SIF, the Forum for Sustainable and Responsible Investing, a Washington, DC-based group that promotes the use of environmental and social investment criteria.
Few corporate governance experts predict widespread change overnight. But as Apple’s February ballot suggests, diversity is shaping up to be a hot subject for 2016.
“We’re going to see a lot more activity around this topic,” says Ron Parker, chief executive of the Executive Leadership Council, whose members include senior black executives from 350 of the largest public companies and institutional investors.
The push has been gathering momentum since 2012, when the 30 Percent Coalition, a group that seeks to have women make up 30% of boards, began urging companies to open up. The incentive: letters signed by its members and institutional investors that collectively oversee US$3 trillion in assets.
By last October, 62 of the 168 companies that had been approached — among them Delphi Automotive, Freeport McMoRan and Under Armour — had appointed women.
In most cases, companies prefer to make any changes quietly, rather than put such an issue to a shareholder vote.
“They don’t want it to become public,” says Charlotte Laurent-Ottomane, executive director of the 30 Percent Coalition.
More than 80% of proposals are usually withdrawn after companies negotiate with shareholders, according to Edward Kamonjoh, head of US research at Institutional Shareholder Services, the proxy advisory firm. In the past 15 years, only 57 diversity proposals have been put to a vote, and not one has passed, according to ISS.
But that doesn’t necessarily mean the proposals didn’t have an effect. A resolution at CF Industries Holdings, a Deerfield, Illinois-based fertiliser company, failed to get enough votes to pass in 2013. But the company has since added two women to its board.
“The resolutions put enough pressure on the company that they have to respond in some way,” says Susan Baker, a vice-president of Trillium Asset Management. “And if they’re voted down one year, they’ll be back on the ballot the next.”
Trillium, which manages US$2,3bn, successfully prodded Apple to change its charter in 2014 by adopting language vowing to make the company’s board more diverse. Andrea Jung, who is Asian-American and the former CEO of Avon Products, has been on the board since 2009. She was joined last year by James Bell, an African American who used to be president and chief financial officer of Boeing.
Last year, not only was there an increase in resolutions, but shareholder demands got tougher, ISS’s Kamonjoh says. Rather than asking companies to create diversity programmes, he says, many shareholders are asking for information on how effective those programmes have been.
The US$162bn New York City Pension Funds use diversity as a criterion when targeting companies for their boardroom accountability push. The funds want “to give investors a meaningful voice at companies with boards that lack diversity”, says city comptroller Scott Stringer. American Airlines and Exxon Mobil Corporation are among those being targeted in 2016.
Trillium, which is focusing on companies in technology, is also asking for more transparency this year. Every US company has to report data about the racial and gender makeup to the Equal Employment Opportunity Commission annually, but only some make the information public. Trillium is sponsoring a resolution that would require Adobe Systems to disclose the data. Adobe declined to comment.
Transparency can point out inconvenient truths. Apple, which does disclose the data, trumpeted the percentage of new hires who were women and minorities last year. But African Americans and Hispanics, who make up more than 30% of the US population, represented only 9% of Apple’s leadership. That proportion was down by half from 2014. Apple didn’t reply to emails and phone calls seeking comment.
“We need to have this conversation,” says the elder Maldonado, who owns 645 Apple shares and whose family uses dozens of Apple products.
Some companies say they can’t find qualified candidates. Laurent-Ottomane and others dispute that. She points to a database developed by the two big California public pension funds that lists women and minorities.
The Executive Leadership Council also connects companies with black candidates. Parker says the group received more than 50 inquiries looking for diverse board candidates last year — three times as many as in 2011.