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We believe effective management of human capital is a matter of good governance and a critical component of long-term business success.

The Issue

Good human capital management can facilitate economic mobility, close the opportunity gap within the workplace, and level the playing field across an organization. Employers that foster a culture of diversity, equity, and inclusion, including robust equal employment opportunity (EEO) policies and programs, benefit from increased worker satisfaction and productivity, an enhanced ability to attract and retain top talent, and reduced employee turnover and associated training costs. Moreover, diverse leadership improves decision-making processes and better reflects demographic trends within customer markets. In contrast, poor management of human resources exposes companies to reputational and litigation risk.

Women account for 21.1% of the directorships in the Russell 3000®, up slightly from 20.7% a year ago.4ISS 2020 Proxy Season Review Among board members of Russell 3000® companies whose race was identified, non-white directors represent less than 11%.5 ISS Analytics U.S. Board Diversity Trends in 2019 Continued progress on board diversity requires serious attention to the board search process and board refreshment.

The U.S. Supreme Court’s decision affirming Title VII prohibits discrimination based on sexual orientation and gender identity is an important step, but as evidenced by findings that 45% of LGBTQ workers agree enforcement of their company’s non-discrimination policy is dependent on their supervisor’s own feelings towards LGBTQ people, an EEO policy is not enough.6 Companies must take affirmative steps to create inclusive environments where LGBTQ employees can thrive, rather than merely survive.

Our Engagement Strategy (2020)

  • Increase representation of women and people of color on boards. As a long-term investor that views board diversity as a critical attribute of a well-functioning board and a measure of sound governance, we expect companies to successfully recruit diverse board members. Because director appointments are
    relatively infrequent occurrences, we advocate for companies to take meaningful actions toward leading practice corporate governance policies and practices to help ensure progress. These include strengthening nominating and corporate governance committee policies and charters; amending proxy disclosures to
    include the gender, racial, and ethnic composition of each director; amending proxy disclosures to explicitly embed a commitment to diversity in board searches; committing to include diverse candidates in each board nominee pool; evaluating board refreshment and review processes; and providing periodic assessments
    of challenges experienced and progress achieved.
  • Disclose workforce composition statistics.In order to promote accountability for hiring, retaining, and advancing women and people of color, we ask companies to publicly disclose data already collected and reported annually to the EEO Commission (the EEO-1 Report): a breakdown of employees according to specific gender, racial, and job categories. Further, we ask companies to provide context regarding their diversity, equity, and inclusion policies, practices, and performance, including challenges. We believe this information enables investors to more accurately assess and value steps companies are taking to ensure equal representation at all levels.
  • Adopt inclusive EEO policies and practices that explicitly protect employees from discrimination. We ask companies to adopt and disclose EEO policies inclusive of sexual orientation and gender identity and expression as public testimony to their commitment to current and prospective lesbian, gay, bisexual, transgender, and queer (LGBTQ) employees. While the June 2020 U.S. Supreme Court’s decision affirming Title VII of the Civil Rights Act of 1964 prohibits discrimination based on sexual orientation and gender identity is an important step in providing basic workplace protections for LGBTQ Americans, it does not extend protections to employees outside the U.S.—nor does it automatically ensure inclusive environments where LGBTQ employees can thrive. Inclusive policies—and practices that translate policies into actions—remain essential for companies to attract and retain employees and customers.