& Securities

The New York City Comptroller’s Office has publicly announced the launch of the next phase of the Boardroom Accountability Project, in which the Comptroller is seeking to engage with 151 companies on board composition, diversity and refreshment.  The Comptroller’s announcement of “Boardroom Accountability Project 2.0,” focuses on providing shareholders with more transparency into the criteria used by boards in selecting their nominees in order to provide meaningful proxy access.  As we discussed in our prior publications, during the 2015-2017 proxy seasons the Boardroom Accountability Project was a driving force behind the widespread adoption of proxy access.

The Comptroller is now targeting the 139 companies that enacted proxy access after receiving a proposal from the New York City Pension Funds, and the 12 companies at which the pension funds’ proposal received majority shareholder support in 2017 but have yet to enact a proxy access bylaw.  The letters are directed to the chair of the Nominating and Governance Committee.

The Comptroller wants companies to disclose a director “skills and experience matrix,” which he believes would assist investors in assessing the criteria the board deems appropriate for evaluating board nominees, determining how well-suited individual nominees are to the company’s needs, and identifying gaps in skills, experience and other characteristics. As noted in the EY Board Matters Quarterly (June 2017), the use of a skills matrix by S&P 500 companies has grown from 6% to 16% in the past three years.  The Comptroller has provided a sample skills matrix with the announcement.

Notably, the Comptroller is requesting that the matrix include race and gender information. The request is consistent with the March 31, 2015 rulemaking petition submitted jointly by the Comptroller and eight other major U.S. pension funds to the Securities and Exchange Commission seeking mandatory matrix disclosure by all US public companies available here.

The Comptroller’s letters request in-depth engagement with one or more members of the Nominating and Governance Committee to discuss four points:

1. The skills matrix currently used by the board of directors in order to assist the Comptroller to understand the range of skills and experiences most critical to the company’s long-term business strategy, executive succession planning and risk oversight responsibilities.
2. The board’s self-assessment process, with particular focus on individual director assessments and how directors who are not fulfilling their responsibilities may step down from the service on the board.
3. Establish a process for the Comptroller and other significant shareholders to submit to search firms used by the company the names of board candidates, particularly diverse candidates.
4. Developing a more structured process for the Comptroller and other significant shareholders to submit board candidates on an ongoing basis.

While the letters to the Nominating and Governance Committee chairs appear to focus on board refreshment and diversity, the Comptroller’s announcement also suggests that director independence and climate competence will also be issues of importance to the the Comptroller.

Based on the Comptroller’s letter and recent statements made by various institutional investors such as Vanguard, Blackrock and State Street, companies and their boards should expect that board composition, diversity and refreshment will be an area of significant focus for investors in the upcoming proxy season.