A flag flies exterior the Citigroup constructing within the Long Island City neighborhood of Queens, New York.
Daniel Acker | Bloomberg | Getty Images
Citigroup will face a shareholder vote on Tuesday on whether or not the financial institution ought to take into account a nonmanagement worker in its pool of candidates when filling a board seat.
The campaign, which is spearheaded by shareholder advocate James McRitchie and primarily based on the NFL’s Rooney Rule, is supposed to diversify boards and bridge the hole between company administration and its workforce. The purpose is to open the strains of communication between the workforce and board members, making certain that employees can present their enter and the board is conscious of essential points.
The coronavirus pandemic known as much more consideration to the pressures handled by hourly employees. While many firms ceded sick pay to their workers in the course of the disaster, issues about valuing income over security have led many to talk up, just like the recent union drive by Amazon employees in Alabama.
“Last year was a big wakeup call for frontline workers and the necessity of having those people,” McRitchie mentioned.
One instance is the widening chasm between CEO and worker compensation. From 1978 to 2018, CEO compensation rose greater than 1,000%, whereas wages for the standard worker grew simply 11.9%, in line with a 2019 report from the Economic Policy Institute.
Outside of the United States, worker representation on boards is rather more widespread. Thirteen European nations, together with Germany and France, require worker representation on a board as soon as an organization reaches a sure dimension.
In the U.S., the latest high-profile instance is the United Auto Workers’ retiree well being care belief gaining a seat on General Motors’ board after the automaker’s chapter in the course of the 2008 monetary disaster. The trust lost the seat in 2018 after it bought off a piece of shares, decreasing its stake to lower than 50%. That identical yr, Senators Tammy Baldwin, D-Wis., and Elizabeth Warren, D-Mass., launched two payments that will require workers to vote for a good portion of board seats.
“The board is not supposed to be involved in day-to-day management, but sometimes the inner workings is where the problems start. Trees rot from the bottom up, as well as the top down,” mentioned Nancy May, CEO of BoardBech Companies, a company governance advisory agency.
May used the instance of the current scandal at Purdue Pharma, the place the board claimed ignorance of the sinister techniques that have been driving gross sales. Purdue filed for Chapter 11 bankruptcy in 2019, a yr earlier than pleading responsible to felony fees from the Justice Department stemming from its advertising of OxyContin.
But one downside of the proposal is it may end in worker board members who do not fully perceive firms’ operations or are pushed by their private beliefs, in line with May.
The present push to contemplate a nonmanagement worker for a board seat kicked off greater than a yr in the past at Walmart’s shareholder assembly with a proposal from Cynthia Murray, an hourly worker of the retailer.
“I know when the pandemic started, Walmart had dropped the ball,” Murray mentioned in an interview. “Had we had workers on the board, they could’ve stepped in immediately and said this is what’s going on.”
Murray is a member of United For Respect, an advocacy group made up of Walmart employees. United For Respect and Majority Action, a nonprofit that focuses on company accountability, labored collectively to shore up assist for the proposal. The proposal gained assist from the state treasurers of Illinois and Pennsylvania, in line with Majority Action’s govt director Eli Kasargod-Staub, however votes got here up far quick, with just one.9% of shareholders in favor.
McRitchie, who publishes CorpGov.web, then took up the mantle. He submitted comparable proposals to Starbucks, Disney, Woodward, WD-40, Citigroup and Edwards Lifesciences, which can maintain its annual shareholder assembly on May 4. He mentioned he focused firms that he thought can be extra amenable to the proposal, primarily based on the terminology that they use for the workforce — like Starbucks’ use of “partner” — and current mechanisms to gauge employees’ ideas, reminiscent of WD-40’s worker surveys.
McRitchie’s decision additionally consists of different choices of receiving extra worker enter, like appointing a board member as a liaison to employees, making a employees’ council or instating a considerable worker inventory possession program.
So far, his campaign has largely did not seize the approval of shareholders. The proposals at Starbucks, Disney, Woodward and WD-40 obtained supporting votes within the single digits after the businesses’ boards advised shareholders to oppose the proposals.
In proxy filings, the boards all argued in opposition to the proposal by mentioning that the businesses have already got open strains of communication with workers and a sturdy course of to appoint board members. WD-40’s board, for instance, cited that 94% of workers who responded to their newest biennial survey acknowledged they’re excited in regards to the firm’s future course.
AT&T‘s board used comparable arguments when it confronted an identical proposal final yr from Jeff Rechenbach, the retired secretary treasurer of the Communications Workers of America, a union that represents greater than 150,000 of AT&T’s employees.
Starbucks, AT&T and Citigroup declined to remark on the proposal. Walmart, Disney, Woodward and WD-40 didn’t reply to a request for remark from CNBC. A spokesperson for Edwards Lifesciences referred to the proxy submitting for the corporate’s public stance on the matter.
Resubmitted proposals face an uphill battle to be voted on once more. The Securities and Exchange Commission permits an organization to exclude a resubmitted proposal from its proxy supplies if it failed to achieve a minimum of 5% of votes in favor when voted on as soon as earlier than within the final 5 years. Barred from resubmitting final yr’s proposal, Murray has as a substitute submitted a decision for Walmart’s shareholder assembly this yr to create a pandemic advisory council made up of employees to advise the board.
At Citigroup, McRitchie’s proposal appears to be like unlikely to obtain sufficient assist. Once once more, the board advised shareholders to vote in opposition to the proposal, noting that it didn’t prohibit nominations of workers.
“The Board believes it is problematic to mandate inclusion of individuals on the candidate list based on a single qualification – employment by Citi – without requiring that such candidates meet Citi’s overall Director Qualifications,” it mentioned within the March proxy submitting.
McRitchie is hopeful that there shall be progress within the years to come back.
“Public pension funds voted against these proposals because they didn’t really have a policy, and I think we might see a different story next year,” he mentioned.
Majority Action’s Kasargod-Staub pointed to the progress during the last decade round different efforts to diversify company boards, so shareholders are higher capable of grasp the Rooney Rule-style strategy. But May thinks that the method will nonetheless be gradual, even with growing shareholder stress.
“Boards here in the states move at slower than a snail’s pace to make change,” she mentioned.