Pension fund agrees to push further on corporate board diversity
Photo | Courtesy of Commonwealth of Massachusetts
Massachusetts State House
The board that manages the state's $86.9 billion pension fund voted Wednesday morning to increase its standards for board diversity and equal employment opportunity at the thousands of companies it invests in, and to promote shareholder proposals related to health coverage and pandemic hazard pay.
The Pension Reserves Investment Management (PRIM) Board signed off on the policy changes developed by Treasurer Deborah Goldberg and recommended by a PRIM subcommittee that would direct PRIM to use its proxy vote as a shareholder to vote against board nominees if the gender and racial makeup of the company's board do not meet PRIM's standards, and to support requirements that companies be diverse in terms of race, gender, use of minority-owned businesses as contractors, and use of women-owned businesses as contractors.
"I think this is the right direction for us to be going," PRIM Board member Dennis Naughton, an elected member of the State Teachers' Retirement Board, said. "I'm pleased to be voting yes on this ... this is the right thing to do and I think it will promote better financial returns in the long run."
The updated proxy voting policy states that PRIM is to vote against or withhold a vote from all board nominees if less than 35 percent of the board is diverse in terms of race and that PRIM is to vote against or withhold a vote from all board nominees if less than 35 percent of the board is diverse in terms of gender. Previously, PRIM's policy was to vote against or withhold a vote if less than 35 percent of the board was diverse in terms of race and gender combined.
The changes adopted Wednesday also add to the policy that PRIM is to vote in favor of shareholder proposals requiring that at least 20 percent of individuals employed by the company be diverse in terms of race, and that at least 20 percent of people employed by the company be diverse in terms of gender. PRIM will also vote in favor of proposals requiring that at least 20 percent of suppliers, contractors and vendors used by a company be minority-owned businesses, and those that would require at least 20 percent of suppliers, contractors and vendors used by a company be woman-owned businesses.
Finally, the policy states that PRIM is to support shareholder proposals requiring companies to "guarantee health insurance coverage that meets the requirements of the Affordable Care Act as enacted, regardless of change in law or Supreme Court ruling," and is to vote for proposals in which companies offer hazard pay or overtime pay for essential workers during a pandemic.
The document adopted Wednesday represents the latest update to a set of policies that Goldberg first put in place in 2015 with the idea that it would lead to positive economic impacts on the companies, their effectiveness and the pension fund's returns. PRIM's proxy voting policy has been updated occasionally since then.
"I think the last time that we updated this policy we were cutting edge amongst our peers and we are now pushing the envelope even further," Theresa McGoldrick, the national executive vice president of the National Association of Government Employees who represents the State Employees' Retirement Board on the PRIM Board, said. "It's promoted good financial returns. As a fiduciary I'm proud of that, but it's also the right thing to do in holding the invested accountable at improving diversity."
Goldberg said "an enormous amount of research" supports the direction the new policy will take PRIM and that "it's not just a valiant thing to do in terms of correcting so many of the inequities that we've seen." She also pointed out that nothing about the policy would prevent PRIM from voting on operating issues.
"We may be cutting edge but that's OK because that's how we started off six years ago when we first implemented the new proxy voting guidelines that began at 25 percent and very quickly funds all over the country joined in and it has made a difference," Goldberg said. "Today what we are finding is every major corporation in America is seeking advice on how to actually implement real diversity initiatives including their suppliers, including the other companies that they work with, and so we are on a trend and leading as we should be for Massachusetts."
For one member of the PRIM Board, the decision to take a cutting-edge stance came without sufficient discussion among members of the board.
"I am supportive of the proposal -- so that is a yes -- because it is consistent with PRIM's view, one which I of course strongly share and support, that there should be greater diversity on corporate boards," Peter Monaco, managing director of Boston-based asset management firm Raptor Group and one of Gov. Charlie Baker's appointees to the PRIM Board, said. "I would like to suggest, however, that in the future particularly in any area in which PRIM is adopting what is clearly a leadership get-out-ahead-of-the-pack position, that we just spend a little more time as a full PRIM board discussing it whatever it is, be it proxy voting, be it anything else really."
Former PRIM Executive Director James Hearty, who serves as Baker's designee on the PRIM Board, abstained from the vote and Goldberg said she "was aware of Jim Hearty's discomfort with it" ahead of the vote. No board member voted in opposition.
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