A flag flies outside the Citigroup building in the Long Island City neighborhood of Queens, New York.
Daniel Acker | Bloomberg | Getty Images
Citigroup will face a shareholder vote Tuesday on whether the bank should consider a nonmanagement worker in its pool of candidates when filling a board seat.
The proposal, which is spearheaded by shareholder advocate James McRitchie and based on the NFL’s Rooney Rule, is meant to diversify boards and bridge the gap between corporate management and its workforce. The goal is to open the lines of communication between the workforce and board members, ensuring that workers can provide their input and the board is aware of important issues.
The coronavirus pandemic called even more attention to the pressures dealt with by hourly workers. While many companies ceded sick pay to their employees during the crisis, concerns about valuing profits over safety have led many to speak up, like the recent union drive by Amazon workers in Alabama.
“Last year was a big wake-up call for front-line workers and the necessity of having those people,” McRitchie said.
One example is the widening chasm between CEO and worker compensation. From 1978 to 2018, CEO compensation rose more than 1,000%, while wages for the typical worker grew just 11.9%, according to a 2019 report from the Economic Policy Institute.
Outside of the United States, worker representation on boards is much more common. Thirteen European countries, including Germany and France, require employee representation on a board once a company reaches a certain size.
In the U.S., the most recent high-profile example is the United Auto Workers’ retiree health-care trust gaining a seat on General Motors’ board after the automaker’s bankruptcy during the 2008 financial crisis. The trust lost the seat in 2018 after it sold off a chunk of shares, reducing its stake to less than 50%. That same year, Sens. Tammy Baldwin, D-Wis., and Elizabeth Warren, D-Mass., introduced two bills that would require employees to vote for a significant 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,” said Nancy May, CEO of BoardBench Cos., a corporate governance advisory firm.
May used the example of the recent scandal at Purdue Pharma, where the board claimed ignorance of the sinister tactics that were driving sales. Purdue filed for Chapter 11 bankruptcy in 2019, a year before pleading guilty to criminal charges from the Justice Department stemming from its marketing of OxyContin.
But one drawback of the proposal is it could result in employee board members who don’t completely understand companies’ operations or are driven by their personal beliefs, according to May.
The current push to consider a nonmanagement worker for a board seat kicked off more than a year ago at Walmart’s shareholder meeting with a proposal from Cynthia Murray, an hourly employee of the retailer.
“I know when the pandemic started, Walmart had dropped the ball,” Murray said 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 workers. United for Respect and Majority Action, a nonprofit that focuses on corporate accountability, worked together to shore up support for the proposal. The initiative won support from the state treasurers of Illinois and Pennsylvania, according to Majority Action’s executive director, Eli Kasargod-Staub, but votes came up far short, with only 1.9% of shareholders in favor.
McRitchie, who publishes CorpGov.net, then took up the mantle. He submitted similar proposals to Starbucks, Disney, Woodward, WD-40, Citigroup and Edwards Lifesciences, which will hold its annual shareholder meeting on May 4. He said he targeted companies that he thought would be more amenable to the proposal, based on the terminology that they use for the workforce — like Starbucks’ use of “partner” — and existing mechanisms to gauge workers’ thoughts, such as WD-40’s employee surveys.
McRitchie’s resolution also includes other options for receiving more worker input, like appointing a board member as a liaison to workers, creating a workers’ council or instating a substantial employee stock ownership program.
So far, his campaign has largely failed to capture the approval of shareholders. The proposals at Starbucks, Disney, Woodward and WD-40 received supporting votes in the single digits after the companies’ boards told shareholders to oppose the proposals.
In proxy filings, the boards all argued against the proposal by pointing out that the companies already have open lines of communication with employees and a robust process to nominate board members. WD-40’s board, for example, cited that 94% of employees who responded to their latest biennial survey stated they are excited about the company’s future direction.
AT&T‘s board used similar arguments when it faced a comparable proposal last year from Jeff Rechenbach, the retired secretary treasurer of the Communications Workers of America, a union that represents more than 150,000 of the company’s workers. Like those so far for McRitchie, Rechenbach’s resolution failed to pass.
Starbucks, AT&T and Citigroup declined to comment on the proposal. Walmart, Disney, Woodward and WD-40 did not respond to a request for comment from CNBC. A spokesperson for Edwards Lifesciences referred to the proxy filing for the company’s public stance on the matter.
Resubmitted proposals face an uphill battle to be voted on again. The Securities and Exchange Commission allows a company to exclude a resubmitted proposal from its proxy materials if it failed to reach at least 5% of votes in favor when voted on once before in the last five years. Barred from resubmitting last year’s proposal, Murray has instead submitted a resolution for Walmart’s shareholder meeting this year to create a pandemic advisory council made up of workers to advise the board.
At Citigroup, McRitchie’s proposal looks unlikely to receive enough support. Once again, the board told shareholders to vote against the proposal, noting that it did not prohibit nominations of employees.
“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 said in the March proxy filing.
McRitchie is hopeful that there will be progress in the years to come.
“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 said.
Majority Action’s Kasargod-Staub pointed to the progress over the last decade around other efforts to diversify corporate boards, so shareholders are better able to grasp the Rooney Rule-style approach. But May thinks that the process will still be slow, even with increasing shareholder pressure.
“Boards here in the States move at slower than a snail’s pace to make change,” she said.