Slowly but steadily, investors are letting corporate boards knowthat “male, pale and stale” doesn't cut it anymore.

The small but growing number of shareholder votes on diversityproposals is on pace to match or exceed the record set last year,according to data compiled by ISS Analytics, which tracks proxies.Apple and Tyson Foods investors already rejected such proposals,and another eight are in the queue.

The $309.7 billion California Public Employees' RetirementSystem has made diversity proposals a priority in its proxy voting,aiming to break companies “out of the group think of male, pale andstale,” said investment director Anne Simpson. “As evidence growson this and fund managers focus on building diversity even in theirown organizations, I think we're going to see support on thismoving up.”

In each of the last five years, more than 20 board diversityproposals have been brought to U.S. companies, encouraging some tochange their policies and avoid a public referendum. IBM and CVShave already done so this year — explicitly stating they willconsider gender and racial diversity in their board appointments.CVS confirmed the changes. IBM declined to comment.

A vote doesn't predict success — in fact, the opposite. Of thenine proposals that came to a vote last year at companies includingApple Inc., LinkedIn Corp. and Skechers U.S.A. Inc., the only oneto pass was at FleetCor Technologies Inc. On average, the proposalsearned about 25% support, according to ISS.

BlackRock Advisors Inc. and Vanguard Group Inc., the twobiggest funds by assets under management, rarely vote forshareholder proposals on diversity topics. Both firms say theyprefer to engage privately with companies.

“The vote is but one mechanism we have to message thecompanies,” said Glenn Booraem, Vanguard's head of corporategovernance. “Our direct engagement with companies has the benefitof being far more nuanced than voting for or against aproposal.”

BlackRock spokesman Ed Sweeney noted the company's commitment tovarious initiatives to raise the number of women in governance andexecutive leadership. “When we speak with company management andindependent directors, we emphasize diversity and inclusion as keycomponents of corporate culture and strategy,” he said.

Morgan Stanley Investment Management Inc. and T. Rowe PriceAssociates Inc., on the other hand, vote for diversity proposalsfar more often. Morgan Stanley had no comment other than to referto its proxy voting policy that says it considers such proposal ona case-by-base basis.

“We tend to support most of these proposals on the rareoccasions when we are voting on them,” Donna Anderson, a vicepresident and global corporate governance analyst at T. Rowe Price,said in an interview. “We think the business case is pretty strongthat bodies with diverse views, including boards, tend to makebetter decisions than non-diverse groups.”

Moving the Needle

At the current pace of gains, women aren't forecast to hold 50%of board seats until 2055. The number of people of color appointedas directors fell in 2016 and the overall rate of minoritiesserving on boards has been mostly unchanged over the last decade,according to executive recruiter Spencer Stuart.

As of now, 13% percent of companies give specific details aboutthe race and gender of directors named in their annual filings,said Belen Gomez, senior director of research at Equilar Inc.,which tracks diversity disclosure. “The needle is moving, but it'smoving slowly. I do think things are going to ramp up.”

NorthStar, based in Boston, filed six proposals this year askingcompanies to adopt language that they would seek greater boarddiversity. All six agreed to add specific wording and the fundwithdrew the proposals, said Mari Schwartzer, assistant director ofshareholder activism, engagement and social research at thefund.

“Companies think that they already have initiatives in place toensure diversity,” said Ivy Jack, director of equity research atNorthStar Asset Management, which brought the proposals to IBM andCVS Health Corp. “We look at it and say, 'Even if you havealready been doing it, maybe you need to do it differently, oryou're not doing it enough, because your board still does notrepresent your customers, or just the general population of thecountry.'”

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