February 18, 2025 Significant Update from ISS and Glass Lewis on Board Diversity Policies for 2025
Okapi FYI – The State of Board Diversity Policies in 2025
Significant Update from ISS and Glass Lewis on Board Diversity Policies for 2025
On February 11, 2025, ISS provided an update on the application of its US voting policies for ISS reports published on or after February 25th. Specifically, “ISS will indefinitely halt consideration of certain diversity factors in making vote recommendations with respect to directors at U.S. companies under its proprietary Benchmark and Specialty policies.” For its benchmark policy, this update means ISS will no longer recommend a vote against the chair of the nominating committee if the company lacks gender diversity on its board. For Russell 3000 or S&P 1500 companies, ISS will not recommend a vote against the nominating committee chair if the company lacks racial and/or ethnic diversity on its board.
On February 19th, Glass Lewis alerted clients that a policy reevaluation is underway relating to board diversity and DEI-related shareholder proposals at US companies. They noted a statement on any changes or modifications to its policies would be made on March 3rd. Glass Lewis’ current policy is to vote against the nominating committee chair if boards at Russell 3000 companies are less than 30% gender diverse.
It is unusual for ISS or Glass Lewis to update a significant policy outside of their typical policy formulation process (e.g., policy survey, draft policy with comment period (ISS only), and final policy released in Q4). However, it appears they perceived the Presidential Executive Orders on DEI as a risk to their clients and/or themselves.
BlackRock and Vanguard Updates
On the institutional investor front, two major institutional investors have already updated their policies for 2025. BlackRock’s voting guidelines altered its language around gender and racial diversity. It also pulled back its explicit call for US companies to aspire to 30% gender diversity and language encouraging S&P 500 companies to have at least 2 women and a director who identifies as a member of an underrepresented group. However, BlackRock kept language that would allow its stewardship team the flexibility to vote against members of the nominating/governance committee if an S&P 500 company fell below the standard of the rest of the S&P 500 on these counts. Vanguard also made similar changes to its guidelines to remove and soften language around board diversity. The guidelines explicitly note that Vanguard has the flexibility to vote against directors if “… a company’s board composition and/or related disclosure is inconsistent with relevant market-specific governance frameworks or market norms.” The impact of these updates on actual voting behavior remains to be seen and may not be fully appreciated until a full review proxy voting data is available via N-PX data in late 2025.
What’s Next?
We will certainly mark our calendars for the Glass Lewis update on March 3rd, as it may have a material impact on director elections in 2025. However, it is also worth noting that State Street also continues to maintain its 30% gender diversity policy. However, State Street policies are typically updated in early March. We will keep a close eye out for any updates on either front.
As noted above, the actual impact on institutional investor voting and broader market trends may not be fully known until later in the year when voting data is available. However, the long-term impact on board composition may not be fully known for years to come.
If you have any questions or concerns about the policy updates or want to discuss specific issues that you want to address, please feel free to reach out to Alexandra Higgins or Bruce Kistler.