Activist Shareholder Proposals and HCM Disclosures Pivot to Diversity, Equity, and Inclusion in 2021

9 minute read | March.24.2021

Since 2015, pay gap disclosure has been front and center on the activist shareholder proposal landscape from an employment and workforce perspective. Following closely on the heels of tragic events of last summer and the significant advancement of the Black Lives Matter movement, activist shareholder groups have pivoted away from proposals requiring disclosures of pay gap statistics and are instead focused on other dimensions of internal diversity, equity, and inclusion (“DEI”). These initiatives seek more broad-based disclosure of whether and how companies are managing gender and racial disparities in representation – including, for example, in the boardroom and at senior management levels within an organization. Combined with recent rule changes at the U.S. Securities and Exchange Commission (“SEC”) with respect to required Human Capital Management disclosures, public companies should prepare for how they will respond to proposals seeking different and new disclosures regarding steps they are taking to expand and maintain diversity within their workforces.

A Brief History of Pay Gap Shareholder Proposals

Over the last five years, shareholder proposals on pay equity evolved to become an important issue at the operational and board level – particularly for companies in the technology and finance industries – with competitive, legal, and cultural implications. These proposals initially focused on undefined “pay gap” disclosures – meaning the overall percentage pay difference between male and female employees – as well as steps taken or proposed to address unexplained disparities. Over time, these proposals sought more granular gender and racial pay gap data, with an emphasis on median pay gap data – meaning a single, raw, unadjusted data point reflecting the middle compensation value among all female employees in a workforce compared to the same value for men. Critics of median pay gap disclosures point out that this measure of pay does not account for legitimate differences in compensation between employees or more nuanced information regarding a company’s highest and lowest earners.

Responses to initial pay gap proposals fell within three buckets: (1) opposition via no action letters; (2) disclosure; and (3) opposition in annual proxy statements. At first, several companies requested no action letters from the SEC in connection with the planned omission of pay gap shareholder proposals from their annual proxy statements. Many of the proposed omissions cited to Rule 14a-8(i)(10), premised on the notion that companies already substantially satisfied a pay gap proposal through existing DEI policies. Companies have also sought no action letters pursuant to Rule 14a-8(i)(7), which allows a company to exclude proposals related to its ordinary business operations. The SEC has generally denied such no action requests.

Beginning in 2016, a handful of companies voluntarily issued limited disclosures that reported very low, if any, pay gap percentages, which typically promoted withdrawal of the proposal. Some companies also incorporated regression analyses controlling for a variety of factors to explain differences in pay. As shareholder activist groups doubled down on their efforts and made their proposals more explicit to demand more granular median pay gap statistics, companies continued to oppose disclosure. Opposition frequently highlights a company’s ongoing DEI initiatives and concern that disclosure will misrepresent or overstate pay internal compensation trends and put the company at a competitive disadvantage and at legal risk. No pay gap proposal submitted to a shareholder proposal to date has passed a shareholder vote.

As of March 2021, just five companies – Citigroup, Mastercard, Starbucks, Adobe, and BNY Mellon – have disclosed or agreed to disclose their median pay gap data in response to shareholder proposals.

Changes in SEC Rules in 2020

In the last year, the Securities Exchange Commission (“SEC”) updated two rules that are anticipated to have an outsized effect on shareholder proposals in the DEI space.

First, on September 23, 2020 the SEC adopted amendments to 17 C.F.R. § 240.14a-8 (“Rule 14a-8”), which, effective January 01, 2022, will raise the bar for shareholders seeking to force votes on proposals.[1] As amended, Rule 14a-8(b), increases the ownership threshold required for shareholders to submit a proposal. The new thresholds are based on both the quantity of securities held and the length of continuous ownership in such securities. Other changes will preclude shareholders from aggregating their individual holdings to meet the ownership thresholds and will require documentation demonstrating a representative’s authorization to act on a shareholder’s behalf. Shareholders must also state that they are able to meet with the company between 10 and 30 days after submitting a shareholder proposal.

Critically, the amendments also drastically alter the resubmission standards for proposals that do not pass a shareholder vote. Currently, Rule 14a-8(i)(12), requires a shareholder proposal to obtain just 3%, 6%, and 10% of voting shareholders’ support for resubmission in each of the three years after the initial submission, respectively. These thresholds will increase to 5%, 15%, and 25% in 2022, respectively, significantly increasing the support a proposal must achieve to maintain viability over time. Given the relatively low levels of support that many pay gap proposals have achieved in past years, the new thresholds may, over time, prohibit resubmission on a year-to-year basis.

In total, the amended Rule 14a-8 provisions increase the materiality requirements for shareholder proposals and prevent the submission and resubmission of purely nuisance proposals – proposals that have no chance of success, have repeatedly failed to garner shareholder support, and are brought by shareholders with only a marginal stake in a company’s performance. Given the relatively nominal successes of pay gap shareholder proposals to date, this change will likely impact how, if at all, shareholder groups pursue pay gap and DEI-related proposals in coming years.

In 2020, the SEC also amended 17 C.F.R. §§ 229, 239, and 240, regarding S-K Items 101, 103, and 105, respectively. The amendments require companies to make human capital management (“HCM”) disclosures on an annual basis beginning in 2021.[2] Specifically, the rule requires companies to disclose a description of their human capital resources and “any human capital measures or objectives that the company focuses on in managing the business.”[3] The rule does not, however, describe how companies must implement this requirement. For example, the rule is silent as to what qualifies as a covered “measure[] or objective[],” as well as the form a compliant disclosure must take. The SEC’s Chairman has, however, indicated that the SEC expects companies to disclose both qualitative and quantitative HCM information.[4]

The required HCM disclosures overlap to some extent with the types of DEI disclosures that shareholder proposals have targeted in recent years. To the extent DEI is part of a company's retention and people management efforts, for example, the rule may require material disclosures regarding any underlying diversity policies, as well as diversity measures that correspond to a company's objectives. Similar considerations apply with respect to pay equity-related disclosures. Other disclosures will depend on the nature of a given company’s workforce and its institutional priorities, as well as its size, maturity, and existing demographic profile. Compared with past shareholder proposals, however, the HCM rule offers companies substantially greater flexibility in how they disclose pertinent HCM information, with a focus on the qualitative and quantitative measures that a company uses to inform its operations.

The Future of DEI-Related Shareholder Proposals

Within this landscape, activist shareholder groups are recalibrating their priorities for 2021. Arjuna Capital, among the most persistent proponents of pay gap shareholder proposals, announced a shift in focus to race in the workplace, informed largely by the Black Lives Matter movement.[5] In one such proposal, to Chubb, Arjuna requests that the company “help ensure its insurance offerings reduce and do not increase (by insuring municipalities facing related civilian litigation) the potential for racist police brutality.” Other of Arjuna’s proposals for 2021 include resolutions related to increasing board representation by nominating at least one individual with “an experienced voice with human and civil rights expertise”[6] who “will qualify as an independent director within the listing standards of the New York Stock Exchange.”[7] And two additional proposals seek racial pay equity data. Although Arjuna’s proposals for this year are not in perfect alignment with the SEC’s new HCM disclosure rule, they do suggest a turn toward more practical – rather than statistical – approaches to DEI.

Companies are simultaneously driving change in the DEI space. In 2020 and 2021, several of the nation’s largest banks – including Citigroup, Bank of America, J.P. Morgan, and U.S. Bancorp, and Well Fargo – committed to adopting or disclosing diverse candidate hiring policies that mirror the “Rooney Rule.”[8] The Rooney Rule requires hiring managers to consider a diverse slate of candidates for an open position, generally including at least one woman and one other diverse individual.

Additional DEI initiatives include leadership training and mentorship programs that ensure opportunities for diverse employees to form meaningful relationships with members of senior management. Likewise, many companies over the last several years have significantly expanded their employee resource or affinity group offerings to provide more organic opportunities for diverse individuals to meet, collaborate, and even express shared grievances. Other novel approaches to DEI include implementing accountability policies and instituting hotlines. Often, companies have combined DEI initiatives to simultaneously improve their frameworks for both promoting DEI and reacting to institutional deficiencies and shortcomings.

How these voluntary DEI efforts will intersect with emerging trends in shareholder proposals remains to be seen. While the SEC’s new HCM disclosure requirement is likely to precipitate further changes in the types of proposals shareholder groups issue annually, companies should expect that some dimension of pay and opportunity equity will remain a driving factor, likely with a renewed emphasis on representation at the board and management levels. At the same time, companies may consider their response to shareholder proposals in conjunction with ongoing HCM disclosures, which may overlap without requiring significant additional analyses. These attendant considerations, along with how shareholders respond to DEI proposals this year, are likely to inform how both shareholder groups and companies approach DEI initiatives and disclosures for years to come.

A critical word of caution: Responses to shareholder proposals related to DEI as well as HCM disclosures need to be carefully vetted by a cross-section of subject matter experts including those with expertise in securities law, regulatory considerations, employment litigation, and compensation and benefits law. Shareholder derivative suits have already been filed in the past year alleging that companies public filings expressed a commitment to DEI that was either false or misleading; in other words, an allegation that those companies were “talking the talk” but not “walking the walk.” Companies need to approach responses to shareholder DEI proposals and required HCM disclosures with the same rigor and control as is necessary for other public disclosures. Companies should remain mindful of the risks and rewards associated with such disclosures, including the potential to waive legal privilege over internal pay equity analyses or other analyses undertaken under legal privilege to provide legal advice to companies on the risks associated with certain kinds of DEI initiatives.


[1] U.S. Securities and Exchange Commission, "SEC Adopts Amendments to Modernize Shareholder Proposal Rule," (Sept. 23, 2020),

[2] U.S. Securities and Exchange Commission, "SEC Adopts Rule Amendments to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors Under Regulation S-K," (Aug. 26, 2020),

[3] Id.

[4] Chairman Jay Clayton, United States Securities and Exchange Commission, "Public Statement Modernizing the Framework for Business, Legal Proceedings and Risk Factor Disclosures," (Aug. 26, 2020),

[5] Arjuna Capital, "Arjuna Capital: 2021 Proxy Season to Show if 'Black Lives Matter' to Shareholders,” (Feb. 2, 2021),

[6] Id.

[7] Arjuna Capital, "Human/Civil Rights Expert on Board,"

[8] Ben Eisen, “Biggest U.S. Banks Embrace ‘Rooney Rule’ Policies in Diversity Hiring Push,” The Wall Street Journal, (Jan. 26, 2021),