Beginning in 2021, Vanguard may vote against board nominating committee chairs or other accountable directors if it fails to see progress on board diversity that is consistent with market norms and expectations. Boards lacking gender diversity, racial or ethnic diversity, or board diversity disclosure and policy, will be particularly vulnerable, as Vanguard perceives these scenarios to present the greatest portfolio risks.
In its newly published Investment Stewardship Insights: "A continued call for boardroom diversity," Vanguard suggests ways in which boards can make progress on their diversity efforts, including long-term succession planning, looking beyond the traditional sitting or former CEOs for candidate sources, strategic increases to board size (subject to later adjustment if/as appropriate) to capitalize on opportunities to add highly qualified diverse directors, and promoting an inclusive board culture.
Typical board diversity engagement questions directors should be prepared to address include:
- How do directors define board diversity? What role does diversity play in the company’s overall talent strategy? What are the risks and opportunities?
- How often does the board conduct a board skills assessment? Are diverse characteristics incorporated into your process?
- How does the board apply diversity considerations to its search for new directors?
- Has the board faced any challenges when seeking to increase board diversity?
- What tactics has the board considered to increase its diversity? Have you considered expanding the board? Looking beyond CEO-level candidates? Planning further ahead?
- Has the board considered partnering with external search organizations focused on identifying diverse talent?
- How has the board evaluated its onboarding process to ensure that future diverse board members are properly integrated into and included in the board’s activities?
See this Pensions & Investments article and additional information & resources on our Board Diversity and Institutional Investors pages.
This post first appeared in the weekly Society Alert!