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Sept. 15, 2021, 10:32 a.m. EDT

Companies say they want to close the gender-pay gap. So why are they trying to block relevant disclosures to investors?

By Gita R. Rao

As interest in equity investing in accordance with environmental, social and governance (ESG) criteria has mushroomed, there has been a corresponding increase in the need for data. 

ESG implementation by investment managers requires, quite simply, high-quality, verifiable data reported at regular intervals. The expansion of ESG investing beyond large-cap U.S. stocks to small-cap and international companies increases data needs even further.

But where does this data come from? There are many ESG data vendors, and they rely upon both public and company information. The sustainability reports published by many companies can be a good source, as they are in the public domain. For corporate governance, regulatory filings provide valuable information on board composition and other issues. 

However, for environmental and social issues, data is self-reported and spotty.   

Take gender-pay equity for instance; in the aftermath of the #MeToo movement, it has become a hot-button topic for investors. The movement has pushed gender-pay equity on to the agenda at company annual general meetings (AGMs), and on to proxy voting cards, resulting in ESG investors asking for disclosure from companies about the pay differences by gender with good reason: Analysis by the Pew Research Center shows that in 2020 women earned 84% of what men earned.

How have companies and ESG fund managers responded? 

I examined all resolutions on gender-pay gap disclosure for the 2020 proxy voting season for the Vanguard Social Index Fund, the largest ESG index fund with assets under management of about $8 billion and almost 500 stocks.

Below is a table of the proposals, the recommendations of company management (“for or “against”) on how shareholders ought to vote, and the votes cast by the fund.

Company AGM date Proposal Sponsor Type Management recommendation Vote cast
Adobe Inc. (NAS:ADBE) 4/9/2020 Report on Gender Pay Gap Shareholder Social Against Against
Bank of America Corp. (NYS:BAC) 4/22/2020 Report on Gender Pay Gap Shareholder Social Against Against
Cigna Corp. (NYS:CI) 4/22/2020 Report on Gender Pay Gap Shareholder Social Against Against
Microsoft Corp. (NAS:MSFT) 12/4/2019 Report on Gender Pay Gap Shareholder Social Against Against
Oracle Corp. (NYS:ORCL) 11/19/2019 Report on Gender Pay Gap Shareholder Social Against Against
Pfizer Inc. (NYS:PFE) 4/23/2020 Report on Gender Pay Gap Shareholder Social Against Against
Bank of New York Mellon Corp. (NYS:BK) 4/15/2020 Report on Gender Pay Gap Shareholder Social Against Against
Alphabet Inc. Class A (NAS:GOOGL) 6/3/2020 Report on Gender/ Racial Pay Gap Shareholder Social Against Against
American Express Co. (NYS:AXP) 5/5/2020 Report on Gender/ Racial Pay Gap Shareholder Social Against Against
JPMorgan Chase & Co. (NYS:JPM) 5/19/2020 Report on Gender/ Racial Pay Gap Shareholder Social Against Against
Wells Fargo & Co. (NYS:WFC) 4/28/2020 Report on Global Median Gender Pay Gap Shareholder Social Against Against
Amazon.com Inc. (NAS:AMZN) 5/27/2020 Report on Global Median Gender/ Racial Pay Gap Shareholder Social Against Against
Intel Corp. (NAS:INTC) 5/14/2020 Report on Global Median Gender/ Racial Pay Gap Shareholder Social Against Against
Facebook Inc. Class A (NAS:FB) 5/27/2020 Report on Median Gender/ Racial Pay Gap Shareholder Social Against Against
TJX Cos. (NYS:TJX) 6/9/2020 Report on Pay Disparity Shareholder Social Against Against
XPO Logistics Inc. (NYS:XPO) 5/14/2020 Report on Sexual Harrassment Shareholder Social Against Against
Delta Air Lines Inc. (NYS:DAL) 6/18/2020 Report on Sexual Harrassment Policy Shareholder Social Against Against

It is striking that in every case where shareholders are requesting disclosure on the gender-pay gap, the fund has cast a vote against the proposal. Just as striking is the management recommendation that shareholders vote against disclosure on the gender-pay gap. 

Companies including JPMorgan Chase (NYS:JPM) have been in the sights of plaintiffs, the government and activist ESG investors for five years. This most likely contributed to JPM’s score improving to a middling B in Arjuna Capital’s recent Racial and Gender Pay Scorecard . However, when it comes to investors , the company is still reluctant to disclose gender-pay gap data. The same is true of many large tech companies, including Amazon (NAS:AMZN) , Alphabet (NAS:GOOG) , Microsoft (NAS:MSFT) and Facebook (NAS:FB) .

ESG index fund managers don’t seem to consider gender-pay equity a priority either, as seen in the consistent votes against the proposals at these companies. 

For comparison, I also examined the BlackRock’s iShares MSCI KLD 400 Social ETF  (PSE:DSI) proxy voting record for 2020 on gender-related resolutions:

Company AGM date Proposal Sponsor Type Management recommendation Vote cast
Adobe Inc. (NAS:ADBE) 4/9/2020 Report on Gender Pay Gap Shareholder Social Against Against
Alphabet Inc. Class A (NAS:GOOGL) 6/3/2020 Report on Gender/ Racial Pay Gap Shareholder Social Against Against
American Express Co (NYS:AXP) . 5/5/2020 Report on Gender/ Racial Pay Gap Shareholder Social Against Against
Cigna Corp. (NYS:CI) 4/22/2020 Report on Gender Pay Gap Shareholder Social Against Against
Delta Air Lines Inc. (NYS:DAL) 6/18/2020 Report on Sexual Harrassment Policy Shareholder Social Against Against
Facebook Inc. Class A (NAS:FB) 5/27/2020 Report on Median Gender/ Racial Pay Gap Shareholder Social Against Against
Intel Corp. (NAS:INTC) 5/14/2020 Report on Global Median Gender/ Racial Pay Gap Shareholder Social Against Against
Marriott International Inc. (NAS:MAR) 5/8/2020 Prepare Employment Diversity Report Shareholder Social Against Against
Microsoft Corp. (NAS:MSFT) 12/4/2019 Report on Gender Pay Gap Shareholder Social Against Against
Oracle Corp. (NYS:ORCL) 11/19/2019 Report on Gender Pay Gap Shareholder Social Against For
Bank of New York Mellon Corp. (NYS:BK) 4/15/2020 Report on Gender Pay Gap Shareholder Social Against Against

Voting was almost identical for this ESG index fund, except for Oracle (NYS:ORCL) .

The majority of these companies have declared their commitment to gender in compensation, and closing the pay gap. Then why are they attempting to block disclosure to investors? Are they walking the walk but not talking the talk?

One possible reason is that there are costs associated with disclosure related to tracking, benchmarking and reporting the gender-pay gap. But these are by and large multinationals already operating in the U.K., where gender-pay gap reporting is mandated. The European Union is also moving in this direction. Another possible reason is the risks associated with disclosure: potential lawsuits, bad publicity and management distraction.

Regardless, the failure of passive ESG fund managers to support disclosure as evidenced by their proxy voting exacerbates the issue. If companies won’t disclose data on workforce pay equity and fund managers do not push for disclosure, how will investors distinguish among companies — such as Citigroup (NYS:C) , Mastercard (NYS:MA) and Starbucks (NAS:SBUX) — that are indeed taking steps to close the gender-pay gap, and those that are merely paying lip service?

All these companies earned an A rank in the Arjuna Capital Racial and Gender Pay Scorecard for benchmarking, “providing an honest accounting of the problem and working to remedy it over time.”

The same trend appears for a resolution asking for a report on sexual-harassment policy at Delta Air Lines (NYS:DAL) in 2019 and 2020, and XPO Logistics (NYS:XPO) in 2020. Management also recommended a vote against a resolution asking for a report on efforts to reduce pesticide use in the supply chain at Kraft Heinz (NAS:KHC) in 2019 and 2020. 

Socially responsible investing cannot be implemented without good data, which has to be primarily provided by companies. Company strategies to deal with urgent issues such as climate change, racial equity and compensation disparities cannot be addressed until and unless we have disclosure.

What is the solution? Regulated disclosure is one path forward, as in the U.K. Another is to pressure ESG fund managers to vote for disclosure on social issues. Investors can vote with their retirement and savings dollars by avoiding ESG fund managers that do not support the push for transparency. 

Without disclosure, funds will be engaging in “impact washing,” and there can be no change. 

Gita R. Rao is a senior lecturer in finance at the MIT Sloan School of Management and associate faculty director of the MIT Sloan Master of Finance program.  Arnav Sheth, a lecturer in mathematics at MIT Concourse, provided the excerpted 2020 proxy voting data.

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