Institutional Investors Release Proxy Guidelines on Board Composition, Compensation, Other Topics

The largest institutional investors, BlackRock, State Street and Vanguard have released their 2022 proxy voting guidelines and engagement priorities as outlined in this blog post from Compensation Advisory Partners. The policy updates focus on executive compensation, compensation committee voting, human capital management, board composition and board of director over-boarding. The following is a summary on the three firms’ board composition policies:

BlackRock

  • Boards should target 30% membership diversity and have at least one director who identifies from an underrepresented group.
  • Blackrock may vote against the members of the Nominating / Governance Committee for an apparent lack of commitment to board effectiveness.
  • Expects companies to disclose the aspects of diversity the company believes are relevant to its business and how the diversity characteristics of the board, in aggregate, are aligned with the company’s long-term strategy and business model and whether a diverse slate of nominees is considered for nomination.

Vanguard

  • Boards can inform shareholders of the board’s current composition and related strategy by disclosing statements of the boards intended composition strategy, including year-over-year progress; policies related to promoting progress toward increased board diversity; and current attributes of the board’s composition.
  • Policy clarifies that a board should represent diversity of personal characteristics inclusive of at least diversity in gender, race, and ethnicity on the board.
  • Policy also clarifies that boards should take action to reflect board composition that is appropriately representative, relative to their markets and to the needs of their long-term strategies.
  • Board diversity disclosure should at least include the genders, races, ethnicities, tenures, skills and experience that are represented on the board.
  • Disclosure of personal characteristics (such as race and ethnicity) should be on a self-identified basis and may occur at an aggregate level or at the director level.
  • Vanguard will generally vote against the Nominating or Governance Chair if a company’s board is not making sufficient progress in its diversity composition and/or in addressing its board diversity-related disclosures.

State Street

  • As disclosed in 2021, S&P 500 companies in 2022 should have a minimum of at least 1 director from an underrepresented community.
  • State will vote against the Chair of the Nominating Committee if this requirement is not met.
  • State Street may vote against the Chair of the Nominating Committee of an S&P 500 company if the company does not disclose the racial and ethnic composition of their boards.