By Ross Kerber
(Reuters) -Top proxy adviser Institutional Shareholder Services said on Tuesday it will no longer consider the gender, racial or ethnic diversity of U.S. company boards when making its voting recommendations.
In a statement posted on its website, ISS cited how in the U.S. “there recently has been increased attention on diversity, equity, and inclusion (DEI) practices, including the issuance last month of Presidential Executive Orders on DEI.”
Tuesday’s change by the influential proxy adviser marks a major step in how executives and investors react to efforts by the administration of U.S. President Donald Trump to end DEI considerations in government and business.
Boardrooms across the S&P 500 have slowly grown more representative since the Black Lives Matter movement of 2020, but gains for women and minorities lately have slowed as companies reach targets and look at other recruiting priorities.
Top investors BlackRock and Vanguard have already reduced the importance of diversity considerations in their stewardship policies. BlackRock, for instance, recently eliminated a 30% diversity target for boards from late 2021, noting that 98% of S&P 500 boardrooms already meet that goal.
ISS said the change will apply both to its benchmark policy and to its specialty policies such as those used by ESG funds, for reports published after February 25.
It will continue to evaluate other director considerations including independence, accountability and responsiveness, ISS said.
ISS competitor Glass Lewis did not respond to a request for comment on Tuesday. On Monday, a representative said it would reassess its approach “if regulatory or legislative changes were to impact corporate issuers and investors.”
ISS did not immediately provide more details, such as how its policies might shift for European companies, or how its recommendations on shareholder resolutions might change.
Representatives for the U.S. Chamber of Commerce and the National Association of Manufacturers did not immediately respond to requests for comment.
New York City Comptroller Brad Lander, who oversees public pension funds and has urged companies to add more diverse directors and workers, said ISS’ move seemed aimed at avoiding new federal regulations instead of acting in investors’ interest.
“Rather than standing up for independent proxy advice, they are preemptively throwing the value of diverse governance under the bus,” Lander said.
ISS, BlackRock and Vanguard have all been targets of Republican criticism for their handling of social and environmental matters, even as the areas gained more investor attention. Climate activists and labor representatives have said ISS and Glass Lewis do not support their issues enough.
(Reporting by Ross Kerber; Editing by Rod Nickel)
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