Trillium’s Advocacy Approach to Gender, Racial and Ethnic Diversity

Trillium Asset Management believes that diversity, inclusive of gender and race, is an essential component of sound governance and essential to a well-functioning organization. As a firm, we seek to achieve diversity at all levels and seek to invest in companies that are doing the same.

There should be no doubt that diverse Boards, C-Suites and workforces supported by an inclusive work environment lead to better business outcomes. Studies by McKinsey & Company, The Wall Street Journal, ISS Analytics, and others confirm consistent correlation between diversity on boards and in senior leadership ranks and improved shareholder value, higher levels of innovation or positive financial measures.^1,2

We also know environments that foster a culture that welcomes diverse perspectives is critical to a healthy economy and democracy. The #MeToo movement, the Women’s March, the removal of confederate monuments, kneeling NFL players and other efforts both large and small have helped amplify questions and deeper discussion about how we treat women, and racial and ethnic minorities in our communities, workplaces, and schools. These events show us that no industry is immune to the consequences of workplace inequality and underlined the need for companies to measure and report useful investor information on their progress to build inclusive workplaces. 

Trillium’s Advocacy Approach: Engaging Portfolio Companies on their Workforce, Executive Leadership and Board Diversity

• Building a Diverse Pipeline 

Companies can best serve a diverse marketplace if their employee ranks reflect that diversity. In order to understand if companies are building diverse and equitable workplaces, investors need meaningful data. That is why Trillium and investor partners began decades ago advocating for disclosure of a company’s EEO-1 report. This report, which companies with more than 100 employees must complete, shows workforce composition data by gender, race, ethnicity, and job category. In 2017, our EEO-1 proposal at Palo Alto Networks received a majority vote of 50.9 percent. This was the first majority vote recorded for a proposal of this kind and resulted in Palo Alto publishing its EEO-1 report and continuing to do so annually, as well as expand disclosures of its diversity practices. When a majority of shareholders voted in favor of our EEO-1 proposal at Travelers in 2020, the multi-line insurer began publishing its annual Equal Employment Opportunity (EEO-1) report for the first time. 

Since 2020, more investors and pension funds have campaigned for increased EEO-1 disclosure. As a result, nearly two-thirds of S&P 500 companies are now disclosing annual EEO-1 employment reports.³ EEO-1 data does not capture all aspects of diversity, but the EEO-1 report provides important diversity data that other reports may not include. A company’s decision to disclose its EEO-1 report demonstrates a corporate culture of transparency and can build accountability into diversity and inclusion efforts. When companies provide EEO-1 data as well as hiring, promotion and retention rates, investors and other stakeholders have a more complete understanding of a company’s workforce and whether it reflects the communities it serves. 

• Building Diversity in Leadership Ranks 

Research continues to point to the lack of diversity in corporate pipelines as a primary reason why too few women are being promoted to senior leadership roles. In 2021, for every 100 men promoted from entry-level roles to manager positions, only 87 women were promoted and only 82 women of color were promoted.⁴ Women comprise 47% of the U.S. workforce yet represent only 14% of named executive roles of Russell 3000 companies.⁵

Over the past several years, Trillium has been raising the importance of diversity across multiple dimensions in leadership ranks with companies across all our strategies. In 2018-19, Trillium began engaging eight companies on this issue. We filed shareholder proposals asking each to assess the current state of diversity within their leadership teams and identify how they might make improvements. This led to successful withdrawals at five companies and strong shareholder votes at the remaining three companies. Our proposal at IPG Photonics garnered 45% support. In addition, a majority of shareholders at Newell Brands and PayCom supported the proposals. Soon afterward, Newell strengthened diversity in its C-suite by appointing a person of color to the CEO role. PayCom promoted a woman to its C-Suite, and the year following our engagement appointed a person of color to its board of directors.

In 2021, we sharpened our request and began engaging companies on setting public, company-wide, quantitative, and time-bound goals. Trillium filed a novel diversity target proposal at Intercontinental Exchange (ICE). We were concerned that while the company states publicly that its workforce should reflect the broader communities where it operates, diversity in ICE’s workforce did not meet this goal. After a series of dialogues, the company publicly committed to diversity targets. ICE will double the representation of under-represented minorities in the US officer population from 6% to 12% in 5 years, increase the representation of female officers globally from 23% to 30% in 5 years, and include a minimum of two diverse candidates when interviewing for any open officer position in which third-party search firms are used. As a result, we were able to successfully withdraw the shareholder proposal.

In 2022, concerned about the lack of progress in IPG Photonics’ leadership ranks, we filed a similar proposal. After a series of dialogues, management improved transparency and accountability and we were able to successfully withdraw the proposal. IPG committed to increase representation of women in its global workforce to 40% from 36%, women in manager and above positions to 28% from 24%, and representation of minorities in management and above positions to 18% from 14% by 2030.

Trillium has a long history of successfully engaging companies on the issue of board diversity. For example, of 28 companies with which we have had substantive engagements, 75% appointed a woman director within 13 months after proposals went to a vote or were successfully withdrawn. One example of this kind of engagement is First Solar. Recognizing a lack of diversity on its board, we filed a proposal asking for a report on steps the Board was taking to enhance board diversity beyond then-current levels, with a focus on racial and ethnic diversity. The Board advised shareholders to vote against the proposal, yet an overwhelming majority (91%) of votes cast supported the call for greater diversity. Soon afterward, First Solar appointed a woman of color with extensive senior executive experience to its board. Women, and particularly women of color, are underrepresented on boards, but we believe investors have an important role to play to move boards closer to gender and racial parity. 

Conclusion

In our view, diversity and inclusion, from entry-level to the C-suite and the Boardroom, is a bottom-line issue affecting competitiveness and financial performance. It is also a vitally important social issue. How companies instantiate their commitments to diversity have real world impacts on how women, girls, and under-represented minorities are treated in society. Trillium Asset Management believes diversity at every level should be a top priority of every company’s efforts to deliver long-term value to its shareholders and all stakeholders.

 

Foot Notes:

1 – https://sloanreview.mit.edu/article/gender-diversity-at-the-board-level-can-mean-innovation-success/
2 – https://www.wsj.com/articles/the-business-case-for-more-diversity-11572091200
3 – https://diversiq.com/300-eeo1-reports
4 – https://www.mckinsey.com/featured-insights/diversity-and-inclusion/women-in-the-workplace#/
5 –  https://read.nxtbook.com/equilar/c_suite/issue_39_summer_2022/boards_making_incremental_pro.html

Important Disclosure 

This is not a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The specific securities were selected on an objective basis and do not represent all of the securities purchased, sold or recommended for advisory clients. Information and opinions expressed are those of the author and may not reflect the opinions of other investment teams within Trillium Asset Management, LLC. Information is current as of the date appearing in this material only and subject to change without notice. This material may include estimates, outlooks, projections and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented.