More Minnesota public companies increasing transparency around diversity reports

For years investors have used environmental, social and governance measures to gauge how well companies factor in long-term risks.

But now investors and shareholders want to know more about the social issues at a company, including the makeup of the workforce and the board of directors.

Because of shareholder pressure and public feedback, more large public companies have been making available their mandatory — but not public — EEO-1 reports to the U.S. Equal Employment Opportunity Commission. The EEOC has used the reports, filed annually since the Civil Rights Act of 1964, to offer aggregated statistics on workplace diversity or as a basis for enforcement actions.

The shareholder advocacy group As You Sow, for example, has been pushing companies since 2019 to make better disclosures on workplace diversity, frequently submitting shareholder proposals in proxy statements.

"Shareholders want to understand the diversity makeup of companies," said Andrew Behar, the group's CEO. "We all know that this has ... a direct material impact on the company,"

In 2020, the group said, 20% of S&P 100 companies released the EEO-1 reports. By the end of 2021 — after companies recommitted to or made larger diversity pledges in the wake of George Floyd's killing — 81% of those companies made the reports public.

The 10 largest public companies in Minnesota all make their EEO-1 reports or versions of them available on their websites. Some are easier to find than others. A simple Google search will find you some, and others such as Target and 3M filings are tucked in workplace diversity reports. Some smaller public companies have yet to release the documents publicly.

In the report, companies document race, ethnicity and gender data based on job categories. The forms were designed to cross industries and have not changed since they were introduced, making comparisons among companies — and even different years for the same company — hard.

The EEO-1 reports give breakdowns on 10 employment categories, including six racial and two gender categories. Critics would say that form doesn't provide enough options, so some companies have offered additional disclosures.

But you can get a flavor of how well a company is doing toward diversity goals.

UnitedHealth Group, Minnesota's largest public company, in its 2020 EEO-1 report, said it has 671 senior managers. Of those, 553 are white men, 18 are Black menand 15 are Black women. The company goes into more detail more than that in its 2020 Sustainability Report.

3M in 2020 had 303 senior managers, including 156 white men, eight Black men and four Black women, according to its EEO-1 report.

Xcel Energy, in its 2020 report, says of 38 senior managers, there are 26 white men, one Black manand one Black woman.

EEO-1 reports are good starting points, but "the resolutions we're asking for are actually for recruitment, retention and promotion data cut by gender, race and ethnicity," said Behar.

As You Sow is seeking more granular data to convert into an advanced scorecard on a company's diversity that can be a useful tool for investors and a benchmark for companies. The nonprofit says the reporting can be done at reasonable expense and exclude proprietary information.

Most shareholder proposals are non-binding, but even if they pass, companies are not required to implement the suggestions. Not doing so, though, can risk backlash from shareholders.

"Most companies are not going to ignore a shareholder vote," said Amy Seidel, a partner in the Minneapolis law office of Faegre Drinker who specializes in advising public companies on SEC reporting requirements and other corporate governance practices.

One can glean information on board members from photos and biographies in annual proxies, but gauging a board members' race or nationality can be tricky, let along sexual orientation or gender identity.

In August 2021, the Securities and Exchange Commission approved board diversity and disclosure rules as requested by Nasdaq. The new rule requires aggregate reporting on self-identified gender, racial characteristics and sexual orientation of a company's board members.

Nasdaq wrote and adopted the rule for its members, but it doesn't officially take effect until later this year. Companies that voluntarily report their board diversity numbers during this year's proxy season won't have to make an additional filing when the rule is finalized.

This doesn't apply to most of the largest Minnesota companies, because they trade on the New York Stock Exchange, which has different rules.

Minneapolis-based Jamf Holding Corp. is traded on Nasdaq, and its most recent proxy shows a good example of the board diversity matrix. Of the company's 10 directors, seven are men and three are women. The diversity data show that two directors identify as two or more races or ethnicities, two as African American or Black and one as Asian.

Eden Prairie-based C.H. Robinson Worldwide also trades on Nasdaq and included a board diversity matrix in its last proxy. That grid shows that its 12 directors include nine men and three women; one identified as ethnically diverse.

Board diversity reporting requirements do face some legal challenges, including from the New Civil Liberties Alliance. The nonprofit civil rights group works to make sure administrative agencies don't overstep their role.

"The SEC has no granting power from Congress to provide rules with respect to board composition," said Margaret Little, NCLA senior litigation counsel. "We are not focused on the diversity issue, our focus is: Does the SEC have this power."