Gender diversity and equality are increasingly coming under the spotlight on Wall Street (see also The Fearless Girl Beckons). The 2017 proxy season was no different. Activist investors, such as Arjuna Capital and Pax World Management, actively targeted Wall Street banks, encouraging them to tackle the gender pay gap.
During the 2017 proxy season, most of Wall Street’s largest banks – including Wells Fargo, Citigroup, Bank of America and JP Morgan – faced gender pay gap proposals on their ballots. The notable exception was Goldman Sachs. They narrowly avoided a proposal by Pax Management, but only after agreeing to improve their disclosure.
Arjuna Capital and Pax World Management claim to have focused their efforts on the banking giants in 2017, because they believe these companies have some of the most significant pay disparities. Arjuna was encouraged by its previous successes within the US tech sector, where seven of the largest companies, including Amazon, eBay and Apple, began to address the issue.
The significance of shareholder activism becomes clear when you look at last year’s AGM outcomes. In 2016, Citigroup was the only one of the aforementioned banks to face a gender pay gap proposal on its ballot. It received a meager 4.8% support. This year support was still poor, but slightly better at an average of around 14.5%. The boards of the targeted companies, however, all recommended voting against the proposals. Citigroup stated that a gender pay gap report would be “costly and time consuming”. JP Morgan cited a long list of external recognitions it received for promoting diversity, to their minds, rendering the proposal unwarranted.
Addressing the Gender Pay Gap: Shareholder Activism vs Regulation
On the other side of the Atlantic, the UK enacted a law in April that would make gender pay gap disclosure a legal requirement. Both public and private companies with more than 250 employees will be obliged to disclose pay gaps by April 2018. This requirement covers about half of the UK workforce. Employers have criticized the requirement as being too burdensome, complex and time-consuming. The majority of companies do not yet have complete information on roles and potential discrepancies within their organizations.
It will be interesting to observe how the two approaches on opposite sides of the Atlantic develop. In the US, companies are free to find the most efficient way of closing the gap on their own terms. The question is whether shareholder activism will be sufficient to move companies to action, making cumbersome regulatory intervention unnecessary.
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