Race and Gender Checks Coming to a Boardroom Near You
New York City pressures Wall Street banks to report "self-identified gender, race and/or ethnicity of individual directors."
The Office of the New York City Comptroller was created in 1801 to be the chief auditor of local government and all its various financial activities. The comptroller's top responsibilities, as bullet-pointed on the office's website, are "conducting performance and financial audits of all City agencies," "serving as a fiduciary to the City's five public pension funds," "providing comprehensive oversight of the City's budget and fiscal condition," "reviewing City contracts for integrity, accountability and fiscal compliance," and "resolving claims both on behalf of and against the City."
Or, you know, pressuring private companies to do race and gender checks.
On Thursday, New York Comptroller Brad Lander proudly announced that the city's pension funds, with their estimated $263 billion under management, had successfully pressured four huge Wall Street firms (Goldman Sachs, Morgan Stanley, JPMorgan Chase, and BlackRock), plus Ford Motor Company, to publicly disclose a "Board Matrix" containing the "self-identified gender, race and/or ethnicity of individual directors."
"Pronounced commitments to diversity and inclusion ring hollow if those values are not reflected in the boardroom where decisions are made impacting their entire workforce," Lander said in a statement. "The strongest boards and management teams are those that reflect the diversity of their workforce, and of our communities. Diversity is a key factor in performance and essential to the long-term value, a priority for many investors."
The comptroller's office expressed disappointment that a sixth firm, NextEra Energy, "refused" to cough up race and gender self-identification of individual board members, opting instead to release that information in aggregate. "The imposition of a prescriptive matrix by individual director can promote a check-the-box approach to refreshment, thus increasing the risk of bypassing a well-qualified candidate," NextEra explained in a statement.
Lander was not having it.
"Investors do not elect directors as a collective body, but as individuals who are accountable to act as fiduciaries in the boardroom and to oversee the long-term strategies of the company," his office shot back. "Aggregate disclosures are not useful for investors making decisions about how to vote on individual directors at annual general meetings."
It's worth taking a step back and thinking that logic through. What Lander and the pension funds are explicitly saying is that not knowing the racial and gender self-identification of a company's board candidate hinders the decision-making process on how to vote. All things else being equal, if Terry Smith self-identifies as a white male instead of a Latinx female, the diversity-valuing city of New York is assumed to be more likely to vote "no" on his candidacy. (One can only imagine where voters' preferences would lie if the nominee refused to self-identify with either a gender or a race.)
There is something both farcical and creepy about this obsession with tracking other people's (mostly) immutable characteristics and using the power of government to compel disclosure thereof. "Race and/or ethnicity" is a tautologically unscientific classification, not improved upon by the city's suggested "best practices" categories of African American, Asian/Pacific Islander, white/Caucasian, Hispanic/Latino, and Native American. What box should Tiger Woods check? Why are we asking individuals to join a group? What on earth does any of this have to do with providing an auditing function on a city government with a $100 billion budget and the highest taxes in the country?
Gotham is hardly alone in conducting race/gender checks on big business. Illinois since last year has required publicly traded companies based in the state to not only provide a board diversity report, but also a "description of the corporation's policies and practices for promoting diversity, equity and inclusion among its board of directors and executive officers," and "whether and how demographic diversity is considered" in senior hiring. A newer law imposes further diversity reporting requirements on any private company with more than 100 employees.
Maryland in 2019 passed a Gender Diversity in the Board Room law requiring publicly traded companies with sales higher than $5 million and nonprofits with budgets higher than $5 million to submit the gender information of their boards.
And just last month, a Superior Court judge struck down as unconstitutional a 2020 California law requiring publicly traded companies in the state to have on their boards at least one member who self-identifies as "Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or…as gay, lesbian, bisexual or transgender."
The Nasdaq, meanwhile, has imposed board-composition requirements of its own (approved by the Securities and Exchange Commission) that could get noncompliant companies delisted as soon as 2023.
The NYC Comptroller's office has been waging this and related pressure campaigns since long before Brad Lander was elected last year, under the specious reasoning that savvy investors (as opposed to Democratic politicians) were hungry for the potentially market-moving information of whether a company's board was sufficiently female or nonwhite.
"It's a liability for NextEra to refuse to disclose specific board composition data," Manhattan Borough President and pension-fund trustee Mark Levine said in Thursday's press release. "We have a responsibility to current and future pension recipients to minimize the funds' risk and ensure the stability of the monthly checks they rely on in retirement. To do so, we must invest in companies that shareholders have faith in, and trust starts at the board level."
It doesn't take too paranoid a read to conclude that the "risk" Levine refers to might well be coming from the government itself rather than some kind of inherent tendency for an overly white male board to underperform the market.
Governments dominated by Democrats tend to treat the private sector as both a permanent revenue stream and a vehicle for enacting social policy. They then act surprised or indignant when the populations of both businesses and residents decline. As ever with regulation, the richest can absorb the burden while the poorer will shrink away.
Meanwhile, this latest push by New York underlines the grim reality that even the most theoretically public-advocating of elected positions, like comptroller, can in a one-party setting become a grandstanding bully pulpit for dinging Russia, weighing in on gifted and talented programs, and producing maybe my favorite government press release headline of 2022: "Comptroller Lander, Council Members Cabán and Hanif Outline Steps for a Feminist Post-Pandemic Recovery."
Maybe, I don't know, audit the government instead?