& Securities

State Street Global Advisors, the world’s third-largest asset manager, announced last week that beginning in 2020, it will vote against the entire nominating committee of a company in its portfolio if the company does not have at least one woman on its board and has not engaged in a successful dialogue with State Street on gender diversity for three consecutive years. The State Street announcement came in the same week that California became the first U.S. state to require listed companies with a principal executive office in California to have a minimum number of women on their boards as we discussed here. State Street’s new policy will be effective for companies listed on stock exchanges in the U.S., U.K. and Australia in 2020, and for companies listed on stock exchanges in Japan, Canada and continental Europe in 2021 – three years after State Street began targeting companies in each country or region. State Street’s existing guidelines announced in earlier in 2018 targeted only the chair of the nominating committee.

As we have previously written here, in March 2017 State Street launched its “Fearless Girl” campaign by installing a statue of a young girl, standing unafraid and staring confidently in the face of Wall Street’s iconic charging bull as “a symbol of the power of women in leadership”1 and began to actively engage with companies and their nominating committees to add women to their boards.

Last week, State Street announced that in the first half of 2018 it voted against nominating committee chairs and other directors at 581 companies for failing to add at least one woman to their board of directors. During the 2017 proxy season, State Street voted against directors at 512 companies for the same reason. Reporting on the impact of its Fearless Girl campaign, State Street announced that at the commencement of the campaign, 1,228 companies (816 of which were in the U.S.) lacked a single female board member, and that since the commencement of the campaign:

• 301 companies have added a female director
  • 215 in the U.S., 40 in Japan, 13 in Canada, 7 in the U.K., 5 in continental Europe and 21 in Australia
• 28 additional companies have committed to adding a female director
  • 14 in the U.S., 11 in Japan, 2 in Canada, and 1 in Australia
• Russell 3000 companies targeted have added at least one female director, driving the percentage of companies on the index without a female director down from 24% in 2016 to 16% as of June 30, 2018

Voting support levels for nominating committee chairs at boards that lack gender diversity have fallen considerably over the last two years and median level of support among nominating committee chairs of boards with no women currently is among the lowest support rates for all nominating committee chairs in the Russell 3000, according to ISS’ 2018 Proxy Season Review on Uncontested Director Elections and Governance Proposals.

Although State Street’s phase-in of the policy in 2020 and 2021 could be critiqued as too distant in the future to have a meaningful impact, State Street remains the first major institutional investor to have adopted a formal policy of voting against directors on matters relating to diversity. While other institutional investors are pushing for increased female representation in the boardroom2 – for the time being – they have stopped short of adopting a formal policy to vote against the election of the nominating committee or other directors due to a lack of board gender diversity.