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State Street places companies on notice over diversity

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State Street has doubled down on racial diversity, threatening voting action against boards that fail to disclose their members’ ethnic composition and to hire at least one director from an under-represented community.

State Street Global Advisors chief executive and president Cyrus Taraporevala has made the call in a letter to board members in US and UK-listed companies, outlining the investment manager’s proxy voting priorities for 2021.

For the year ahead, the company has stated its main stewardship themes will be the systemic risks associated with climate change and a lack of racial diversity. 

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State Street has decided to demand changes in disclosure and hiring around the composition of boards.

In 2021, the company will vote against the chair of the nominating and governance committee in the S&P 500 and FTSE 100 that does not disclose the racial and ethnic composition of their boards. 

It has also pledged to vote against the chair of the nominating and governance committee at S&P 500 and FTSE 100 companies that does not have at least one director from an under-represented community on their boards, in 2022.

Mr Taraporevala noted research has shown diversity can improve decision-making, risk oversight and innovation, as well as profitability. 

“The preponderance of evidence demonstrates clearly and unequivocally that racial and ethnic inequity is a systemic risk that threatens lives, companies, communities, and our economy – and is material to long-term sustainable returns,” his open letter stated.

“While most companies in the United States are required by regulators to track racial and ethnic diversity, disclosure at the board level is sparse and only 6 per cent of Russell 1000 companies actually share detailed data publicly on their employees’ gender and ethnic identities.”

Chairs of the compensation committee at companies in the S&P 500 will also face opposing votes in 2022 if they do not disclose their responses to the EEO-1 survey, a compliance report mandated in the US, requiring information around employees’ race and gender. 

State Street has also committed to improving its own racial diversity, through disclosing its board composition and EEO-1 data. It has made forward-looking pledges including tripling its Black and Latinx leadership during the next three years.

 

State Street places companies on notice over diversity
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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