Analysis: What happened when a U.S. state required details on corporate diversity

U-Haul Holding

11/05/2021 17:42

(Changes headline)
    By Ross Kerber and Jessica DiNapoli
    May 11 (Reuters) - Aerospace company Boeing Co  BA.N  was
explicit, naming who among its dozen directors were women, Asian
and African American. Agricultural giant Archer Daniels Midland
Co  ADM.N  offered a more general accounting, saying its board
was 55% diverse.
    Illinois officials have seen the range of responses from
local companies - many with international profiles - to new
state requirements they identify the gender and race or
ethnicity of each board member. The regulators say they are
going to push all to be more like Boeing.
    Companies, investors and elected officials will watch
closely what happens next with the state's rare requirement for
director-by-director declarations.  urn:newsml:reuters.com:*:nL1N2GB1UW
    Other say less specific disclosures protect directors’
privacy, but even those plans face opposition. Some Republicans
have called for regulators to reject a Nasdaq Inc  NDAQ.O 
proposal to ask for the number of directors by gender, race and
ethnicity - without any names.  urn:newsml:reuters.com:*:nL1N2KI1O5 
    State Representative Chris Welch, speaker of the Illinois
House of Representatives, proposed what became the 2019 Illinois
law on board diversity reporting. "You can't go wrong with more
data," said Welch, who is Black. 
    Corporate America's white-dominated leadership has been
under a spotlight for supporting the Black Lives Matter movement
while listing few leaders of color.  urn:newsml:reuters.com:*:nL1N2DN31I Activists point
to some studies suggesting companies with diverse boards perform
better.  urn:newsml:reuters.com:*:nL1N2GB1UW 
    Chicago-based Morningstar Inc  MORN.O  CEO Kunal Kapoor
said, "Over time investors want more detail, rather than less." 
    "Putting sunlight on areas that lacked it has rarely had a
poor outcome for investors," added Kapoor, who is Indian
American and identified as Asian in a corporate filing last
year.
    Companies face no penalty if they do not fully report but
may comply to avoid criticism by people scrutinizing the
information, which began appearing on the Secretary of State’s
website last year. 
    Last month Illinois officials tweaked a disclosure form to
make more explicit the call for companies to list the
self-identified race or ethnicity of each director, and gender. 
    A spokeswoman for ADM - which in 2020 gave the 55% figure
and noted five of its 11 directors were African American, Asian
or Hispanic, and that three were women - told Reuters the
company will consider reporting further detail next year. It has
since added a director and says that half its 12-person board is
now African American, Asian or Hispanic.
    Sixty-six of the 74 companies that filed forms since the law
was passed provided enough information to parse out their racial
diversity, University of Illinois professor Richard Benton said 
in a March study https://bit.ly/3hgpo3P. He found non-white
people held about 15% of the average company's boardroom seats,
compared to their 40% share of the state’s population. 
    But even among companies with incomplete filings there
seemed to be little resistance to the disclosures. For instance
at U.S. Cellular Corp  USM.N  only two of fifteen directors
provided their race on a form last July. The company did not
make directors available to comment but a spokeswoman said for a
more current filing, “100% of our members have self-identified.”
    Phyllis Lockett, a director at exchange operator CME Group
Inc  CME.O , said that diversity disclosures should give some
breakdown by race and ethnicity to help identify what groups
might be missing. She said she did not mind being identified as
a Black woman on a filing last August. "I am Black and I am a
woman. There’s no secret there,” she said. 
    Ekta Singh-Bushell, who described herself as Indian American
and is identified as Asian in a filing from Huron Consulting
Group  HURN.O , said that disclosure must have details and
nuance on directors’ skills, knowledge and experience to show
they do more than "check the box" for gender or race
    “To bring about sustainable and real, lasting change, the
conversation should be, 'Do we have the right representation to
fulfill our highest purpose as a corporation?'” she asked.
    Among the S&P 500, 9% of directors were Black as of January,
according to researcher Equilar, up from 8% in August. Hispanics
were 4.2% of S&P 500 directors, up from 3.6% in August. Asian or
Pacific Islander directors accounted for 4.5%, up from 4.4% in
August. 
    African Americans were 13.4% and Hispanics 18.5% of the U.S.
population, as of 2019. Asians were 5.9%. Women, 51% of the U.S
population, held 23.5% of board seats at Russell 3000 companies
last year, up from 18.5% in 2018, Equilar found.
    Illinois State Senator Jacqueline Collins, an African
American who co-sponsored the legislation, said that without
name-by-name disclosures, it can be hard to determine whether
companies are being frank when they declare they are diverse.
    "So we want to know the specific participation,” Collins
said.
    Other plans do not go as far. Stock exchange operator Nasdaq
Inc  NDAQ.O  is awaiting regulators' approval to require
companies it lists to report the number of directors by gender
and in categories including Black or Hispanic and LGBTQ+, but
not name-by-name. The exchange wants boards to have at least one
woman and one minority or LGBTQ+ member, or explain why they do
not.
    "We don't actually care about which person is which. We want
to understand the boardroom as a whole,” said Wendy Cromwell,
vice chair of the $1.1 trillion Boston money manager Wellington
Management. It supports the Nasdaq plan especially for having
companies provide diversity information in easily compared
tables. 
    But Joe Shoen, the CEO of U-Haul’s parent company,
Nasdaq-listed Amerco  UHAL.O , objects.
    "As soon as you sort people by skin color, you got my back
up," Shoen, who described his family as interracial, said in an
interview. “That it has some meaningful indication as to how a
corporation is being managed is superficial at best.”
    Shoen said he regularly speaks with entry level U-Haul
employees to gain diverse perspectives.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
ANALYSIS-Color blind? How boardroom diversity data eludes
advocates     urn:newsml:reuters.com:*:nL1N2GB1UW
U.S. Senate Republicans ask SEC to reject Nasdaq diversity rules
    urn:newsml:reuters.com:*:nL1N2KI1O5
INSIGHT-U.S. companies vow to fight racism but face critics on
diversity     urn:newsml:reuters.com:*:nL1N2DN31I
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Ross Kerber in Boston and by Jessica DiNapoli in
New York; Editing by Donna Bryson and Lisa Shumaker)
 ((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters
Messaging: Ross.Kerber.Reuters.com@Reuters.net))