New York State is wielding its $250 billion pension fund in a campaign to widen diversity at public companies, including pushing for disclosure of previously confidential data on workforce race, gender and ethnicity, Comptroller Thomas DiNapoli announced Thursday.
DiNapoli outlined a multi-layered strategy that also includes plans to expand the fund's votes against incumbent board members at companies whose boards are deemed not sufficiently diverse based on age, race, gender, ethnicity, geography, disability, sexual orientation and gender identity.
"Companies must root out racial inequality, just as they would root any other systemic problem that puts their long-term success at risk," DiNapoli said in a statement citing the 2020 death of George Floyd while in police custody that triggered a national protest movement. "Corporate America must join in the national reckoning over racial injustice and confront institutionalized racism."
The New York State Common Retirement Fund was valued at almost a quarter trillion dollars at the end of 2020, making it the third largest such fund in the nation. The fund is managed on behalf of the New York State and Local Retirement System.
Employers with at least 100 workers and certain smaller companies are required to file annual confidential reports with the U.S. Equal Employment Opportunity Commission that break down employees by gender, racial and ethnic identity in 10 job categories.
A January report from nonprofit JUST Capital found that just 59, or 6.3%, of the 931 largest U.S. companies published the type of data compiled in the EEOC reports.
Still, Leslie A. Brun, the lead independent director on the board of Lake Success-based Broadridge Financial Solutions, said that though progress is slow, he believes the world is moving in the right direction.
Since June 1, 115 Fortune 500 companies have added a Black director, said Brun, who is Black and also sits on the boards of Corning Inc., based upstate, and Merck & Co., based in Kenilworth, New Jersey.
The COVID-19 pandemic and the death of George Floyd have joined to "shine a light on the current circumstances," he said, creating conditions for change.
Alon Y. Kapen, a securities lawyer at Uniondale-based Farrell Fritz P.C., said corporate leaders' private reactions to DiNapoli's initiative are likely to be far different from their public statements.
"The public reaction will be supportive and, at a minimum, will try very hard not to express opposition," he said. "The private reaction will be that this is going to be a real challenge for companies."
Kapen said some companies "will see it as an intrusion on corporate governance" and an effort to redefine the traditional role of corporate directors to enhance shareholder value.
"Boards have fiduciary duty to act in the best interests of shareholders," he said.
Efforts to widen the scope of corporate governance could put directors in the position of also representing employees or even "society at large," Kapen said.
DiNapoli did not raise the possibility of divesting from companies that fail to comply with diversity proposals.
"It would be a more blunt instrument if they vote with their feet," Kapen said, "and it might run afoul of their fiduciary responsibilities" in running the pension fund.
Still, Brun said New York State's pension fund carries substantial weight even beyond its securities holdings.
"It's part of the community of institutional investors with whom it has influence," he said.
The DiNapoli initiative comes as corporate boards come under growing pressure to increase diversity from several angles.
In December, the Nasdaq filed a proposal with its regulator, the Securities and Exchange Commission, to adopt new diversity rules.
The rules would require companies listed on the stock exchange to disclose board of director diversity statistics and require most Nasdaq companies that come up short to explain why they do not have at least two diverse directors, "including one who self identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+."
- Introduce shareholder proposals pushing for greater diversity in public companies;
- Push to open up confidential reports detailing the race, ethnicity and gender of public companies' workforces;
- Call for racial equity audits;
- Vote against the slates of corporate boards that are not diverse based on age, race, gender, geography, disability, sexual orientation and gender identity;
- Encourage portfolio companies to disclose "whether directors identify themselves as LGBTQ+ or a person with a disability."