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A law mandating corporate board diversity for publicly traded companies based in California was recently ruled unconstitutional, but pressure to diversify boards isn’t just coming from lawmakers.
Two large California-based companies, Google parent Alphabet Inc.
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and Wells Fargo & Co.
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are facing first-of-their-kind calls from shareholders to diversify their boards even further. Wells Fargo shareholders will vote on a resolution Tuesday, while Alphabet shareholders will vote on a similar resolution at the company’s annual general meeting on June 1.
The same investment manager, Arjuna Capital, put forth both proposals, and this week targeted a third company with a similar resolution: Tesla Inc.
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The electric-vehicle maker, which was started in California before moving its headquarters to Texas, will hold its next annual general meeting in the fall.
Arjuna Capital says in its resolutions that the board diversity of each of the companies is “largely disproportionate” from their customer base, and is urging them to report what they’re doing each year to address that.
Natasha Lamb, managing director for Massachusetts-based Arjuna, told MarketWatch that while there have been plenty of shareholder resolutions about board diversity, she has not seen any proposals asking for alignment between the makeup of boards and companies’ customer and employee demographics.
“This is the first time that investors have formally pressed any company to set more aspirational targets,” she said. “Having a third woman or minority just doesn’t cut it, and that’s not what we should be aspiring to.”
Using the demographics of the U.S. population — 51% women and 42% underrepresented minorities — as a proxy for the companies’ customer base, Arjuna said in its proposals that:
- Wells Fargo’s board is made up of 25% women and 25% minorities. Arjuna also said the company’s employee workforce is 56% women and 45% minorities.
- Alphabet’s board is made up of 27% women and 18% underrepresented minorities.
- Tesla doesn’t report the composition of its board, but Arjuna in its proposal cited a news report saying the board is 22% women.
Wells Fargo asked shareholders to reject the proposal, saying in its proxy that it considers its board composition “in light of the diverse communities and geographies we serve.” The bank also said it has included in its proxy since 2017 the demographics of its board members. The latest: Of its 14 board members, four are non-white and five are women.
Alphabet also recommended a vote against the proposal, saying in its proxy that its board already considers “all aspects of diversity, including racial and gender diversity, in evaluating board candidates,” and that it already discloses the gender and racial/ethnic makeup of its board. The breakdown is elsewhere in its proxy: Of 11 board members, four identify as non-white and three are women.
Tesla has not responded to a request for comment about the proposal. According to its website, out of eight board members, two are women, and at least two members appear to be non-white.
Meanwhile, Home Depot Inc.
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is facing a slightly different call from NorthStar Capital Management, which says that although the company has made improvements in board diversity since 2015, when NorthStar pushed for it, progress has slowed. In 2015, the company had 16% women and 16% people of color on the board, said Mari Schwartzer, director of shareholder activism and engagement at NorthStar. Now those levels are at 29% each, she said.
“A statistic that isn’t obvious in the proxy is that the overall diversity of the board is stagnant,” Schwartzer said.
In Home Depot’s proxy, the company said it is “pleased” with its efforts to diversify its board and urged shareholders to vote against the proposal. The company’s annual general meeting is May 19.
A Los Angeles judge earlier this month declared the California law requiring publicly held companies to diversify their boards with members from underrepresented racial and ethnic groups and those who identify as LGBTQ unconstitutional after a lawsuit by a conservative legal group. Gov. Gavin Newsom had signed the bill into law in 2020.
The author of Assembly Bill 979, state Rep. Chris Holden, D-Pasadena, said in a statement to MarketWatch that he was disappointed by the ruling.
“With AB 979, I wanted to give people from diverse backgrounds a seat at the table in boardrooms, where decision-making occurs — to be included,” Holden said. “I look to the Secretary of State and Department of Justice as they review the court’s decision and provide insight on the next course of action.”
The California DOJ referred any questions about a possible appeal to the Secretary of State’s office, which said it was still considering next steps.
Holden also said one reason he remains hopeful about companies diversifying their boards is a Nasdaq rule, approved last year, requiring diversity on corporate boards. That rule is also being challenged, though. The New Civil Liberties Alliance late last year sued the Securities and Exchange Commission, alleging it lacks the authority to approve the Nasdaq rule.
