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Emerging public companies increasingly want to be leaders on diversity, equity, and inclusion (DEI) issues. This includes understanding evolving disclosure expectations, implementing effective communication approaches, and adopting DEI best practices from their industry peers. Here, with these goals in mind, we answer some of our private portfolio companies’ most frequently asked DEI questions.
“We’ve seen a growing trend of investors caring about DEI. Why do you think this is, and do you think it will continue?”
Shawna: As a firm, we believe DEI better enables us to collaborate, solve problems, make decisions, and, ultimately, to deliver better investment results and solutions to our clients. In our view, there are three key reasons why investors’ interest in DEI could continue to grow: potential for improved performance, a differentiated talent pool, and stronger knowledge retention.
“What DEI investor expectations should we be prepared to meet?”
Hillary: A growing number of asset managers are asking companies to disclose their DEI goals and strategies as well as the racial, ethnic, and gender composition of their boards and workforce. Some investors have taken further steps by voting against companies that do not have a minimum number of women and underrepresented individuals on their boards.
We view DEI practices as a material input to long-term performance and therefore ask our public and private portfolio companies to align with our efforts to increase transparency by disclosing their board and workforce diversity data. For our public company investments, we reserve the right to vote against the reelection of nominating/governance committee chairs at US large cap and FTSE 100 firms that do not meet local market expectations for racial and ethnic board composition, have gender diversity of less than 20%, or have failed to appoint one director from a minority ethnic group. We will also support shareholder proposals asking for improved workforce diversity disclosure, for example EEO-1 reporting for US companies. Full detail on our public company voting policies with respect to board diversity may be found in our 2022 Global Proxy Voting Guidelines. For our private firms, this year, we will begin tracking the racial and ethnic diversity of their boards, as well as engaging with management on these issues where necessary.
“What recent DEI-related laws and regulations are likely to impact my company?”
Drew: There are several regulatory measures that have recently passed or are currently under review that could materially change how companies report on and approach diversity in the future. This is a non-exhaustive list and regulations are quickly evolving.
“How can we improve our DEI profile as a private company? What are some meaningful best practices my company could implement?”
Shawna: We believe that active leadership and accountability are critical to improving a company’s DEI profile. In our view, companies should aim to:
Diversity, equity, and inclusion will likely continue to be increasingly important factors for companies and investors alike. We believe private companies approaching the public markets should understand and adapt to DEI best practices and disclosure expectations. In our view, these efforts are not about meeting a target, but rather seeking to ensure the diversity of boards, management teams, and workforces that can provide multiple perspectives and skill sets to enhance long-term performance.
We believe Wellington can help our portfolio company management teams and boards navigate the DEI landscape by sharing our experience, perspective, and resources. For instance, we’re working to develop a new proprietary director database that will connect private company boards to high-potential, diverse candidates. Once this database is live, we hope it will be one of many resources to help our portfolio companies achieve their DEI goals. Please see further resources below.
1Source: McKinsey & Company, “Diversity wins: How inclusion matters,” May 2020. Based on the gender and ethnic diversity of executive teams. Figures are relative to companies with bottom quartile executive team diversity. | 2Companies with five or fewer board members are only required to have one diverse director. | 3Source: NASDAQ Listing Center, “NASDAQ’s Board Diversity Rule,” February 2022. | 4Companies that qualify are those with principal executive offices in the state. Companies with five directors must have a minimum of two females on the board and those with six or more directors must have a minimum of three female directors on the board by 2021. | 5Source: JDSUPRA, “The Push for Corporate Board Diversity Requires Your Attention, Regardless of Legal Challenges,” April 2022. | 6Source: Bloomberg, “EU Set to Approve 40% Quota for Women on Company Boards by 2026,” June 2022. | 7Source: S&P Global, “Gender Equality in the Workplace,” February 2021 | 8Source: Harvard Business Review, “What Happened When India Mandated Gender Diversity on Boards,” February 2021. | 9Source: Caerulean Analytics, a research, data, and analytics firm focused solely on Diversity, Equity, & Inclusion (2021).
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