NYC Comptroller Boardroom Accountability 3.0

Michael Garland is Assistant Comptroller for Corporate Governance and Responsible Investment and Jennifer Conovitz is Special Counsel of Pensions in the Office of New York City Comptroller Scott M. Stringer. This post is based on their recent Office of New York City Comptroller memorandum.

In its new initiative, Boardroom Accountability Project 3.0, the Office of New York City Comptroller Scott M. Stringer calls on boards of directors to adopt a diversity search policy requiring that the initial lists of candidates from which new management-supported director nominees and chief executive officers (CEOs) are chosen include qualified female and racially/ethnically diverse candidates (a version of the “Rooney Rule” pioneered by the National Football League) and that director searches include candidates from non-traditional environments such as government, academic or non-profit organizations in order to broaden the pool of candidates considered. The policy should provide that any third-party consultant asked to conduct a director or CEO search will be required to follow the policy.

As Comptroller of the City of New York, Comptroller Stringer is the investment advisor to, and custodian and a trustee of, the New York City Retirement Systems (“NYCRS”), which have more than $200 billion in assets under management and are substantial long-term shareowners of more than 3,000 U.S. public companies. The campaign is part of the successful “Boardroom Accountability Project” launched in the fall of 2014.


At its inception, the Boardroom Accountability Project sought to make boards more diverse, independent and climate competent. In its first phase, NYCRS worked company-by-company to achieve the reforms that made “proxy access” a market standard in the U.S. Today, more than 600 U.S. companies—including over 70% of the S&P 500—have enacted proxy access bylaws, up from just six U.S. companies when the project began. This reform provides long-term investors with a powerful tool and the mere specter of a proxy access candidate is expected to make boards more responsive to shareowner engagement, particularly with respect to board composition, thereby limiting the need for its actual use.

Boardroom Accountability Project 2.0, launched in 2017, sought greater board transparency and requested that U.S. companies disclose the race and gender of their directors, along with board members’ skills and experience. The initiative pioneered the “Board Matrix” format for disclosing details about company board directors. In response to NYCRS engagement, companies began to disclose board matrices and also publicly committed to including women and people of color in their candidate pool for board searches. With the help of NYCRS, the number of the largest U.S. companies (i.e., Fortune 100) that now explicitly disclose their board members’ race has doubled from 23% to 45% in the last three years. [1]

In further pursuit of key boardroom accountability objectives, this year NYCRS revised its Corporate Governance Principles and Proxy Voting Guidelines and will oppose incumbent nominees who serve on a board’s nominating committee if “the board lacks meaningful gender and racial/ethnic diversity, including but not limited to any board on which more than 80% of the directors are the same gender.” According to the revised policy, “the Systems may integrate more explicit racial/ethnic diversity expectations in the future as reliable data become available and may increase the minimum expectation for gender diversity.”

Boardroom Accountability Project 3.0

The most recent initiative, Boardroom Accountability Project 3.0, now seeks long-lasting structural change in market practice. Earlier this month, Comptroller Stringer sent a letter to the nominating/governance committee chairs of 56 S&P 500 companies that have not disclosed a diversity search policy that includes Rooney Rule language addressing gender and racial diversity for the selection of directors and the CEO. The diversity search policy is not intended to be a substitute for robust internal succession planning, although companies should maintain and disclose a process for fostering a diverse talent pipeline for executive management. Companies received letters regardless of the current composition of their board of directors and upper management, because they should have a robust diversity search policy in place to institutionalize the board’s commitment to achieving and maintaining racial and gender diversity over the long term, including beyond the terms of the incumbent directors and CEO. Later this year, NYCRS will file shareholder proposals at some of the 56 companies with a lack of apparent racial diversity at the highest levels.

There is little doubt that significant gender and racial disparity still exists at the CEO and board level. Through Boardroom 3.0, NYCRS specifically seeks adoption of diversity search policies requiring that the initial lists of candidates from which new management-supported director nominees and CEOs are chosen include qualified female and racially/ethnically diverse candidates, the broadening of director searches (well beyond the C-suite to areas such as government, academia and the non-profit realm) and that any third-party consultant conducting director or CEO searches are required to follow the policy.

The proposed policy is based on the Rooney Rule, adopted by the National Football League (NFL) in 2003, which requires teams to interview minority candidates for head coaching vacancies. The Rooney Rule was expanded in 2019 to include general manager jobs and equivalent front office positions. It does not dictate who should be hired and does not mandate an outcome. It does however, widen the talent pool and require the inclusion of a diverse set of candidates for consideration. It is difficult to ignore the positive impact of the Rooney Rule on diversity. In the twelve years before the Rooney Rule was enacted, the NFL had four minority head coaches and one minority general manager. During the twelve years subsequent to enactment, the NFL featured 16 head coaches of color (two of whom have held two different head coaching positions) and eight general managers of color. [2] Moreover, since enactment, ten NFL teams that reached the Super Bowl were led by either a minority head coach or general manager.

Many S&P 500 boards are taking action and have instituted similar policies with respect to board searches, including at Alliance Data Systems, Amazon, Costco Warehouse, Facebook, General Electric, Jeffries Financial Group and W.W. Grainger, often in response to constructive engagement from institutional shareowners such as the NYCRS.

A large and growing body of empirical research suggests a positive correlation between diversity and performance. Research by McKinsey, for example, suggests that companies with greater gender and racial/ethnic diversity in the leadership team have stronger financial performance. [3] Similarly, MSCI research suggests that gender diverse boards have fewer instances of bribery, corruption, and fraud. [4] Diverse boards can better manage risk by avoiding “groupthink,” a cognitive bias referring to the tendency among “homogenous, cohesive groups” to “consider issues only within a certain paradigm and not challenge its basic premises.” [5] In its report, the International Monetary Funds’ Independent Evaluation Office identified a “high degree of groupthink” as contributing to the IMF’s failure to correctly identify the risks leading up to the worldwide financial crisis. [6]

Despite the increased focus on diversity by both investors and companies, the data show that CEO and board representation of women and minorities is increasing at a slow rate and remains unacceptably low. In 2018, the total percentage of women on Fortune 500 boards was 22.5%, up from 16.6% in 2012, and total minority representation was 16.1%, up from 13.3% in 2012, according to the “Missing Pieces Report” published by Deloitte and the Alliance for Board Diversity. [7] The proportions of S&P 500 company CEOs who are women (5.4%) [8] and racial minorities (less than 1% of Fortune 500 CEOs were black in 2018) [9] are even lower.

Adopting a policy that requires the consideration of women and minority candidates for every open director seat and CEO position enhances the search process and assists the board in developing a diverse board and executive team. A 2016 study published by the Harvard Business Review found that including more than one woman or minority in a finalist pool changes the status quo to help combat unconscious bias among interviewers. The researchers found that the odds of hiring a woman were 79 times greater when there were at least two women in the finalist pool, and the odds of hiring a minority were a staggering 193 times greater when there were at least two minority candidates in the finalist pool. [10]

Too many companies inadvertently and unnecessarily narrow the candidate pool in new director searches by only considering candidates with public company CEO, C-Suite, and/or board experience. Often, the board nomination process remains insular and the lack of board quality and diversity can be traced to a board’s failure to cast a wide net when looking for new members. According to PwC’s 2016 Annual Corporate Directors Survey, 87% of directors said they rely on board member recommendations to recruit new directors. [11]

Given that, as recently as two years ago, roughly 72% of CEOs on the Fortune 500 were white and male [12], boards with “prior executive experience” policies are less likely to select females and minorities simply because there are fewer of these candidates from which to choose and more likely to recycle from a narrow pool of well-established and often “overboarded” minority business leaders. Looking beyond the C-Suite allows companies to augment their candidate pool with more diverse candidates. As a related benefit, broadening searches will allow companies to enhance diversity not only in the boardroom, but also in the C-Suite. According to a 2014 report by leading search firm Russell Reynolds, “as minority representation on boards increases, so does minority representation in the C-Suite.” [13]

The spirit of Boardroom Accountability 3.0 is consistent with the Business Roundtable’s call for boards to “develop a framework for identifying appropriately diverse candidates, which asks the nominating or corporate governance committee to consider women and/or minority candidates for each open board seat.” [14] It is time for major U.S. companies to heed that call and consider both. A responsive policy will enable a company’s board to both (a) respond to growing investor demand for robust diversity policies and (b) comply with recent guidance from the Securities and Exchange Commission regarding required disclosures related to director qualifications and diversity (February 2019, Compliance & Disclosure Interpretations under Regulation S-K—116.11 and 133.13). [15]

The ultimate objective of Boardroom Accountability 3.0 is meaningful, long-lasting and structural change in market practice such that the search process ensures that female and minority candidates are considered for every open director seat as well as for the job of CEO.


1Klemash, Steve W. Smith, and Jamie C., EY Center for Board Matters, “Five Takeaways From the 2019 Proxy Season,” Harvard Law School Forum on Corporate Governance and Financial Regulation, August 8, 2019, back)

2Cyrus Mehri, Pamela Coukos, Comments on Business and Financial Disclosure Required by Regulation S-K, July 21, 2016, back)

3Vivian Hunt, Dennis Layton, Sara Prince, “Why Diversity Matters,” McKinsey & Company, January 2015,; Vivian Hunt, Sara Prince, Sundiatu Dixon-Fyle, Lareina Yee, “Delivering Through Diversity,” McKinsey & Company, January 2018, back)

4Linda-Eling Lee, Ric Marshall, Damion Rallis, Matt Moscardi, “Women on Board: Global Trends in Gender Diversity on Corporate Boards,” MSCI, November 2015, back)

5IMF Performance in the Run-Up to the Financial and Economic Crisis IMF Surveillance in 2004–07, available at back)

6Id.(go back)

7“Missing Pieces Report: The 2018 Board Diversity Census of Women and Minorities on Fortune 500 Boards,” Deloitte, back)

8“List: Women CEOs of the S&P 500,” Catalyst, October 4, 2019, back)

9Gillian B. White, “There are Currently 4 Black CEOs in the Fortune 500,” Atlantic, October 26, 2017, back)

10Stefanie Johnson, David Hekman, Elsa Chan, “If There’s Only One Woman in Your Candidate Pool, There’s Statistically No Chance She’ll Be Hired,” Harvard Business Review, April 26, 2016, back)

11Paula Loop, “2016 Annual Corporate Directors Survey,” Harvard Law School Forum on Corporate Governance and Financial Regulation, October 27, 2016, back)

12Lucinda Shen, “The Retirement of Amex’s Ken Chenault Means Just 3 CEOs on the Fortune 500 Are Black,” Fortune, October 18, 2017, back)

13“Diversity in Leadership: Minority and Female Representation on Fortune 250 Boards and Executive Teams,” Russell Reynolds Associates, 2014, back)

14“Principles of Corporate Governance,” Business Roundtable, back)

15U.S. Securities and Exchange Commission, Regulation S-K, back)

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