Thursday, July 21, 2011

Shareholder Diversity Proposals in 2011

It is important to take a fact-based approach to the issue of increasing the presence, on corporate boards, of women directors or diversity candidates. Toward that end, I queried Institutional Shareholder Services Inc. (ISS) --  a leading provider of corporate governance solutions to the global financial community -- and asked them to report on the number of shareholder proposals submitted during the 2011 proxy season relating to board diversity.

Only two shareholders proposals were submitted for a vote during this proxy season: Urban Outfitters (7 directors, all male) and American Financial Group (10 directors, all male). Both proposals were sponsored by Calvert Asset Management Company, Inc.  The Connecticut Retirement Plans and Trust Funds joined Calvert in the Urban Outfitter proposal, while the Board of Pensions of the Evangelical Lutheran Church in America joined Calvert on the American Financial Group proposal.

Both proposals failed to reach any noticeable support from shareholders:

Urban Outfitters - received only 22.6% support
American Financial Group - received only 26.8% support.

Read the proposals and the board responses in the proxy statements:

Calvert also filed proposals, which were ultimately withdrawn, at:
General Cable Corp. (7 directors, all male)
Jefferies Group, Inc. (8 directors, all male)
WABCO Holdings (8 directors, all male)

United Methodist Church Foundation filed a similar proposal, which was ultimately withdrawn, at National Oilwell Varco, Inc. (8 directors, all male).

Sponsors of shareholder proposals may withdraw them after engaging with target companies and gaining concessions, which may include a commitment to adopt the policy or simply to provide additional disclosure.

I would conclude the following from this evidence.  The Calvert et al. shareholder proposals had zero weight or impact on nominating/governance committees or board consideration of women or diversity director candidates. The supporting statements for the proposals show a heavy reliance on “beliefs” and “academic research” rather than substantive experience within the corporate boardroom.

Both shareholder proposals and board responses argued their positions were supported by  the SEC’s December 2009 ruling, which gave corporations wide discretionary latitude in their considering or not considering “diverse” candidates. Since both sides appeal to the SEC’s ruling, we would conclude that it was a wash.

Reliance on “academic research” arguments by shareholder proponents has had little or no credibility within the business community. That research is specious at best, with results going in all directions, providing little predictive power and merely support for a “belief” system that sustains the studies.

An examination of the proxy counter arguments (Board of Director Responses) provides the strategies that might prove more effective in bringing forward new, appropriate women and diversity director candidates. Boards and nominating committees, and others who would nominate new candidates, today must consider a candidate’s:

·        viewpoint, professional experience, individual characteristics, qualities and skills resulting in the inclusion of naturally varying perspectives among the directors.
·        whether these capabilities and characteristics will enhance and complement the full Board of Directors as a unit, and
·        whether the Board of Directors, as a whole, possesses the appropriate skills and experience to oversee the Company’s business and serve the long-term interests of our shareholders.

Shareholder proposals will not win the day as they might have in the past with race or conflict diamonds as the central issue.  Shareholders who bring forth actual new independent director nominations with the specific credentials and capabilities described above have a far better chance to be considered. 

It’s time to stop looking at the increase in the number of women and diversity directors as a “social movement.”  It’s time to look at the specific credentials and talents which individual candidates could bring into the boardroom, and how well their presence would complement the work of the board as a whole, over the long term.

Saturday, July 9, 2011

On Diversity

The word “diversity” has lost all meaning and significance. And the women’s movement is partially to blame.  “Diverse” just means “different in type, kind, form or character.” Today, “diversity” tries to get everything for everybody, but ends up just adding mere fluff to the discussion.

At one point, the effort was simply to get more women on boards, more women into executive positions and more women as CEOs/President.  If women had stayed the course, then all of the research by McKinsey, Goldman Sachs, Deloitte, PricewaterhouseCoopers, Harvard Business School and of course Catalyst would still be focused on the inclusion of women of talent and competence into leadership roles at American businesses. If women had stayed focused on that one performance metric, today we might be able to say that companies would be economic fools not to follow the wisdom of the research and place more women in top positions.

We cannot focus on that anymore because that once simple initiative -- to achieve the rightful presence of the 51% of the market who are women -- regressed into an amorphous effort “to make room for EVERYBODY!” Today, “diversity” means NOT only women, but ALSO Hispanics/Latinos/Latinas, African-Americans or people of color, Asians, Native American, LGBT and Veterans.  Before you go off on that attack tangent, I affirm here my belief that all of those individuals have an equal right to advancement and leadership.  I don’t take issue with their cause.

I do take issue with the belief, by women, that if we all get into this bed together, somehow that will make us more powerful or effective in accomplishing our collective, communal goals. I take issue with the false belief that “it takes a village.”  It is the amorphousness of the concept of “diversity” that is problematic.  Women consciously, purposefully and intently participate in promoting “diversity” as a meaningless goal, spouting off about it with the same passion as Motherhood, Sainthood, Apple Pie and the Girl Back Home.

Is anyone surprised that boards of directors in general, and their nominating and governance committees in particular, have reverted to a definition of “diversity” that is so washed out that it is now impossible NOT to attain:  “intellectual independence,” “global mindset” and “wisdom and maturity.”  What do any of these mean in terms of actual recruitment of those warm and walking things called competent corporate directors -- especially women?

Entrenched directors stare at the ongoing diversity debate like deer caught in the headlights of an oncoming car.  Most male directors, if they can’t or don’t understand an issue, they’ll try to do something, anything, that makes it look as if they are solving the problem.  That is what directors are doing about “diversity.”

The Calvert Group’s recent study of corporate diversity practices provided further evidence of how boards have thrown money and bodies at the “problem of diversity” hoping to “solve the problem” and put the angry genies back into their box. Calvert examined 10 “diversity indicators” such as corporate investment in EEO policies, internal/external diversity initiatives, family-friendly benefits, etc. among S&P 100 companies.  Their study found that 70 to 85% of these top tier firms have most of these practices in place. Yet, 56% STILL have no women AND/OR minorities in the top 5 highest paid executive positions. Only 67% have 3 or more women AND/OR minority directors. Diversity initiatives have not produced the desired results -- certainly not at the topmost rungs -- and most certainly not for women candidates. Diversity has failed because it is meaningless.

“Examining the Cracks in the Ceiling: a survey of Corporate Diversity Practices of the S&P 100

In 2010, Catalyst reported that one in five companies among the Fortune 500 had 3 or more women on their boards of directors.

Fortune 500

Source: Catalyst Census of Women on Boards 2010

Spencer Stuart’s Board Index reported similar percentages for the S&P 500 -- 18% of the companies had 3 or more women directors and 38% had 2 women directors.

By generalizing the women-on-boards issue into the much more amorphous issue of “diversity,” women-on-board advocates believed they would win support from those other groups. In the end, they merely diluted their own efforts and effects.  They added six new categories of special groups to be included on boards. If this had been a case of adding new shares, or adding competitors to the marketplace, or an expansion of the candidate pool for any executive search, the dilution of the prospective market would have been obvious. Women advocates sought to be “inclusive” in order to appeal to a larger market by piggy-backing on the efforts of thousands of other prospects. It is a strategy that failed to advance the cause of adding more women to corporate boards. It didn’t work because women spread their support over seven subgroups, while the other groups advocated on behalf of themselves, alone.

The end result is that there is more inclusion, albeit at small numbers, across the spectrum of all the special groups; but the focus on women directors has been lost.  Women hid their talent under the proverbial bushel basket -- again!  Women felt more comfortable speaking up on behalf of the larger community -- but lost the leverage they needed to advance themselves, again.

Calvert et al. now argue for “more disclosure” about “diversity” and “inclusiveness” efforts.  I’d argue in favor of far less information about these superficial subgroup differences and far more focus on answer the tough questions shareholders should be asking, one-on-one of directors at annual board meetings:

            How many women candidates for directors did your nominating committee consider this proxy season?
            How many women candidates for directors did your executive search advisors submit for consideration this proxy season?
            How many women did you invite to serve?
            How many women declined to serve?
            Did any investor group or shareholder group submit name(s) of women director candidates for consideration?
            What is your primary reason why you have not increased the number of women directors this year?

It would be much easier to hold boards accountable for the answers to these simple, straight-forward questions.  These are the “top performance metrics” that nominating committees should be addressing. If we let allow boards and their nominating committees to continue to hide behind the chimera of “diversity,” we will never see any progress at all.

Wednesday, July 6, 2011

On WalMart

On June 20, 2011, the U.S. Supreme Court decision reversed the Ninth Circuit's certification of the "class" of 1.5 million current and former employees at WalMart. The 5:4 decision, along predictable lines, held that Betty Dukes et al.'s case against WalMart did not establish sufficient "commonaltiy" among the 1.5 million women employees such that the alleged pay and promotion discrimination claims could be remedied collectively. The individual plaintiffs are able to pursue their specific and individual claims against the company, which they have vowed to do.
There have been numerous individual cases against corporations, successfully arguing that the firms systematically supported discriminatory pay and promotion practices and that their policies sustained harassment, resulting in sizable judgments ($100 million each against Toshiba, Cigna and Bayer; $150 million against Eaton; $253 million against Novartis; and $350 million against KPMG). Earlier cases against financial institutions similarly resulted in large penalties or settlements.
What is different here? The argument that "we're all in this together" was tossed. And the surprising thing is that we're surprised.
First, this court has shown a clear preference for business, with 5:4 decisions commonplace. Second, the court earlier fired a warning shot across the Dukes et al. bow with their decision (in AT & T v. Concepcion) that California state law could not override federal law. An April, 2011 Supreme Court ruling, again in a 5-4 vote, made it harder for consumers with small-dollar grievances to band together as a class to sue corporations.
Third, the court in the WalMart v. Dukes case said it was not possible to remedy past discriminations using the class vehicle. How do you find 1.5 million women who might have ever possibly wanted pay raises or promotions? Even if you could locate the women, on what basis could any court practically determine what specific "opportunity was lost" as a consequence of actions by WalMart's dispersed management? Was it even WalMart's actions or was it individual managerial actions? Should Walmart be held liable for disparate treatment or for uniform treatment -- which should apply in this case? Were women in Palm Coast, Florida subject to the same treatments as women in Chicago, Illinois? If they were not, what does that say as to the uniformity of the alleged "class" discrimination? Should we just "presume" that all 1.5 million women faced the same bias and discrimination as Betty Dukes et al.?
The Supreme Court's June 20th decision was about the "class," not the merits of the arguments presented by the individual plaintiffs. Nevertheless, it is hard on plaintiffs to have spent the past 10 years pursuing this lawsuit only to be turned away. We would have wished that their individual cases could have been heard, on the merits, long ago and in plaintiffs favor. It will be very difficult to win a generous settlement from WalMart, now, at this late date and in light of the failure of the class action. Plaintiffs, on advice of counsel, took a long shot and lost.
What are the lessons for aggrieved women who would argue they were subject to pay and promotion discrimination by corporations, today? First, do not count on the leverage of a class. This is a different world, and the feminist "movement" is no more. Those who await legislative remedies or quotas by congressional action -- especially in this current contentious political arena -- need to recognize today's new realities. There are dreamers who continue to put 21st century Equal Rights Amendments into the legislative hopper, now 32 years after it's failure to pass --- but they delude themselves. It doesn't "take a village" anymore.
What it does take, today, is sheer intestinal fortitude. And maybe a little forensic technology. And undoubtedly a pristine background.
Intestinal fortitude will be required if you encounter bias or harassment and wish to argue pay or promotion discrimination. If it exists, as alleged, you will need to prove it incontrovertibly. That means documenting specific instances, providing supporting evidence rather than sociologists' studies or opinion surveys. It also means you need to prepare to travel this road alone, with only an attorney, and not with all your sisters from the firm. If they've been wronged too, they will have to stand up for themselves, file their own evidentiary-based well-argued and -supported lawsuit. What a different world we would encounter if only a third of the truly aggrieved women (half a million) would have the guts to stand up and sue on their own behalf. A primary reason that discrimination and bias continue is that the perpetrators know that the majority of women will not fight for their own personal rights, but would prefer to wait for the crowd-swell of righteous indignation. Ain't gonna happen anymore, girl.
Forensic technology will be required to support your case. Maybe that will include digital recordings of salacious comments from supervisors re-broadcast on social media. Perhaps it will include careful positioning in front of company or public video cameras or surreptitious use of hand-held video cams. Audit and accounting evidence will be far more persuasive, and potentially more embarrassing, to corporate leadership than the he-said/she-said hearsay that currently dominates most alleged discrimination cases. Today, women must assume they will not be believed -- only evidence will speak for them.
A pristine record is essential. Past behavior is a predictor of future, and the defense bar always opens with near-slanderous confrontation of the plaintiff. The best defense is a solid reputation of integrity and trust.
The biggest difference today is that women who aspire to pay and promotion advancement must be willing to fight for their individual rights, first and foremost. If you are not willing to do battle for your own best interests, then forget the idea that some collective justice is out there to protect you. There is no modern legal Prince Charming, anymore.
Betty Dukes and her alia can still fight their battle on the merits of their individual cases. That's their right and their personal responsibility. And we wish them success. Ten years is a long time to be without employment.
Now, for all the other individual cases -- if we women consumers and investors believe that WalMart is not behaving as it should with regard to pay and promotion of women to senior management, then we too have individual actions we could take in the court of the American marketplace.
If individual women consumers want WalMart to hear their voices, women can shop elsewhere and write to Mike Duke, president, or the three women corporate board members or the 15 women members of the corporate diversity council, and tell them why. WalMart's Facebook is another opportunity to comment. But, as most people know, women will seldom stop shopping to express their outrage.
If individual women investors want WalMart to understand their concerns, women can vote their proxy against the offered slate of directors, sell their shares and/or write to the major institutional shareholder entities expressing their concern that WalMart is failing to properly supervise their rogue managers.
Whether plaintiff, consumer or investor, women have the right and the duty to act independently -- before they can expect any democratically-founded group to concur with them. If women are not ready to remedy the wrongs they perceive individually, they will not be entitled to the protections of the collective.
Sorry, ladies, but we are not "all in this together"; there isn't "a movement" anymore, and it doesn't "take a village." As with men, women need to learn that all it takes for a democracy to fail if for good men (and women) to do nothing.

I Would Submit

I would submit the bold and fearless statement that, “Only women care about diversity. Not all women. But, not enough women care about the issues to take substantive action.”

I would submit that most statements by women researchers on this subject would not withstand scrutiny by objective independent peer groups (male and female).  The statements are subjective, emotional, passionate, and most of all not supported by the evidence. Just because we say “everybody knows….” doesn’t make it a fact.

I would submit that the NACD doesn’t really think that women on boards is an important issue.

The recent report of the NACD National Advisory Council for Nominating and Governance Committee Chairs, “Facing New Challenges, Improving Communication” (September 28, 2010) contained zero references to diverse or diversity. There were only two mentions of the word “independent” -- one was the description of a committee member’s position.  The other came from the paragraph which said that “boards can and should have the lead role in determining board composition, and that only the board can really ensure that composition is aligned with strategy.” The report quoted one director who argued that, “There have been all kinds of fads for director qualifications over the years.”

I would submit that ISS doesn’t really think that women on boards is an important issue.

As recently as this morning’s webinar highlighting ISS’s review of priority proxy issues, they stated that there were barely a handful of shareholder proposals on the topic, and most of those were withdrawn prior to the annual meetings.  ISS doesn’t even really weigh into their evaluation of governance quality the metric of how many women directors a company has on board.

I would submit that only nonprofit women’s advocacy entities believe that “3 is the magic number” of women directors, that TSR actually increases BECAUSE of increases in the number of women directors on boards (rather than RESULTING from other factors), or that quotas of women directors has a prayer in the American marketplace. But, nonprofit women’s advocacy entities do not own or vote shares, so why should corporate America heed them?  Catalyst’s multiple boards have many corporate members, but if Catalyst’s own data is to be believed, they have had little or no impact on the number of women on top corporate boards. Isn’t it Catalyst that keeps telling us “no progress?”

I would submit that if women at the top and on boards “outperform,” then why is it that 51% women owned businesses have receipts half of that for 50-50% women/men led businesses, have a lower propensity to hire workers and those who do hire workers tend to have fewer workers? Why is it that less than 2% of women-owned businesses have revenues of $1 M/year or more? Are those “performance measures?”

Who is really making a difference in this market?  It is those women who are preparing and qualifying themselves for real world board roles.  They aren’t part of the ROAR, they are part of the quiet revolution of women rising to leadership roles and responsibilities, taking on the substantive challenge of building real for-profit businesses, hiring employees, turning profits back into the companies for the benefit of shareholders and stakeholders.  Quietly. One woman, one company at a time. See the trend at:  But, please don’t try to persuade me that “all women” or “any women” are or can do this.  That is why it IS hard to find the really talented ones who DO, rather than those who merely talk.

Open Your Minds

By now, we would expect the National Association of Corporate Directors would be on the leading edge of creative thinking with regard to Nominating and Governance Committee charters and functions.  NACD does have some of the topmost talent from the diverse and independent marketplace.  So, why then do we NOT see any new, creative, independent thought coming out of their latest committee report?  I am referring to: the report of the NACD National Advisory Council for Nominating and Governance Committee Chairs, “Facing New Challenges, Improving Communication” (September 28, 2010).

First, if you search for any reference to diverse or diversity, you will find no such reference. There are only two mentions of the word “independent” -- one is the description of a committee member’s position.  The other comes from the paragraph which said that “boards can and should have the lead role in determining board composition, and that only the board can really ensure that composition is aligned with strategy.” Does that mean that the NACD committee is suggesting shareholders should have no voice in determining board composition?

The report quotes one director who argued that, “There have been all kinds of fads for director qualifications over the years.” May we also ask the committee if they believe that diversity is a mere fad?

That same director stated that “the most important qualifications for directors are judgment, pattern recognition and wisdom.” Clearly judgment and wisdom are crucial talents, but why would “pattern recognition” rank up there unless the speaker was arguing in favor of repeating patterns identified rather than “independent mindedness?” Would the committee elaborate on the value that “pattern recognition” brings into strategy-determination?

The committee made their concerns most explicit in citing Theodore L. Dysart, managing director of board search for Heidrick & Struggles International. Dysart said, “That’s what I’m finding somewhat uncomfortable about the stage we’re getting into, where shareholders exercise judgment on director qualifications.” Dysart does not believe that shareholder have the required skills to function in the domain of “judging director qualifications.”  Would the committee care to comment on why, therefore, we should expect shareholders to vote on directors at all? Why would nominating and governance committees allow nominations from shareholders to be considered in the same manner as internally-generated nominations?  Are these two concepts merely games we are playing with shareholders?

Dysart elaborates fully and in depth with his comment, “They know how to swing a bat, but can they hit a major league fast ball?” I guess that’s what they mean by “pattern recognition” -- an example of using metaphors and groupthink well-known to the in-crowd of good ol’ fashioned board members. Is he implying that diverse and independent-minded candidates cannot “hit it out of the park” just like others whom only he might know?

The committee did recommend that boards disclose to shareholders -- with greater clarity -- how they are doing a great job of aligning board composition with strategy and maintaining high levels of independent mindedness. Is the real need better disclosure or is it to do a better job in these areas?

As an example of how boards “look outside the box,” the committee cited a director of a Fortune 100 company who actually revealed that their board search mindset, in fact, is stuck in the 1960s.  Today, when literally hundreds and thousands of women are leading major corporations, public companies, founding private ventures and venture capital entities, this sterling Fortune 100 director still goes trawling in the “non-profit sector” because he thinks that is the only place he will find competent women board members. THAT is “pattern recognition.” “Out of the box” thinking would inform him that that sector provides only about 5 to 8% of all the women directors at leading firms in the 21st century.  The amazing thing is that he is surprised that the one woman he could find in that search for a board role is “doing an excellent job.”

It is this “inside the box” mentality that diverse and independently minded people want to correct.  This is tokenism in its most ancient form: it reminds one of the comments about “the little woman.” If Heidrick & Struggles is only looking in the nonprofit world to find women capable of handling complex business enterprises, then we should not be surprised that the data shows Fortune 500 firms accessing barely 20% or less of the top talent among women in the capital marketplace.  Boards are getting the talent they seek, and probably the talent they’ve earned and deserve.

Open you minds.  It’s a new world out here.