House Democrats are pushing legislative proposals to task the Securities and Exchange Commission and other financial market regulators with requiring companies to disclose racial and gender pay equity audits, board director demographics and other diversity-related information.

Such measures would pressure investment firms and other public companies to follow through on vows to address racial and gender disparities in their hiring and make their workplaces more inclusive, staff for House Financial Services Chairwoman Maxine Waters, D-Calif., and Diversity and Inclusion Subcommittee Chairwoman Joyce Beatty, D-Ohio, said in a report published this week.

Among the recommendations, Democrats are seeking to put together a discussion draft of legislation that would have the SEC mandate that companies conduct audits of compensation and pay variations based on employee race and gender identity every two years and disclose the results to the agency. Another measure, from Rep. Gregory W. Meeks, D-N.Y., would require public companies to annually disclose board directors’ and executives’ voluntary and self-disclosed gender, race, ethnicity and veteran status.

The House Financial Services Committee will hold a hearing Thursday on diversity and inclusion efforts among investment managers, including BlackRock and The Vanguard Group, the world’s largest asset management firms, as a growing number of shareholders concerned about environmental, social and governance issues demand that companies disclose such information.

Michelle Gadsden-Williams, who joined BlackRock last year as its global head of diversity, equity and inclusion, will testify at the hearing, company spokesperson Dominic McMullan said.

“We firmly believe that diversity, equity and inclusion leads to more innovative and resilient decisions and outcomes, particularly in complex and fast-moving industries like asset management,” said Ashley Beale, a BlackRock spokesperson. “We’re pleased to have the opportunity to share an update on BlackRock’s DEI strategy and look forward to working with the committee on this important issue.”

BlackRock, which has almost $9.5 trillion in assets under management, declined to comment on the specific legislation outlined by the report. Vanguard, which oversees $7.1 trillion in assets, is reviewing the report, spokesperson Alyssa Thornton said in an email.

Democrats also recommended a discussion draft of a bill to mandate that public companies disclose whether they had direct or indirect ties to slavery or profited from the practice as part of an independent audit on their diversity and inclusion policies.

“To the extent that these institutions did have ties to or benefited from slavery, they would be required to disclose what steps they have taken to repair and compensate for community or individual injury,” the report reads. 

“Additionally, the bill establishes the Office of Reparations Programs within the Treasury and authorizes $3 billion towards down payment assistance, homeownership, startup capital, and funded savings programs for Black communities, as well other programs determined appropriate by the Secretary in furtherance of racial equity,” according to the report.

Republican opposition

Democrats’ legislative recommendations will likely receive criticism from Republicans, who have largely opposed mandatory disclosure. In an October hearing with SEC Chair Gary Gensler, Georgia Rep. Barry Loudermilk said such requirements push a “left-wing political agenda” and are unnecessary.

Spokespersons for House Financial Services ranking member Patrick T. McHenry, R-N.C., and Rep. Ann Wagner, R-Mo., who is the ranking member of the diversity subcommittee, did not immediately respond to requests for comment.

Democrats’ legislative wish list goes further than what Gensler and the SEC have suggested on disclosure. Gensler told lawmakers in October that the SEC was looking to build on 2020 rules on companies’ disclosure about their workforce, as well as other human capital disclosure.

“Human capital is probably one of the most critical assets of a company,” Gensler said, adding that investors were increasingly asking companies for information on diversity of boards and workers.

“I’ve asked staff for recommendations in two areas related to this. One, with regard to the boards and board diversities, what recommendations that we, as a commission meeting investor demand, could do but also, more broadly, the workforce, the entire workforce and what we have come to call human capital disclosure.”

In August, the SEC approved Nasdaq’s requirement for listed companies to have at least one female director and at least one person from an underrepresented minority or LGBTQ group, or explain why they don’t. That rule is now being challenged in court.

During the 2021 proxy season, the number of investor proposals submitted increased year over year by 11 percent, to 802, according to law firm Gibson, Dunn & Crutcher LLP. Social proposals had one of the biggest increases, up by 37 percent in the one-year period. Of the 239 social-related proposals submitted, more than half pertained to anti-discrimination and diversity-related issues.

“Interest in corporate [human capital management] and [diversity, equity and inclusion performance] has grown in recent years among employees and the general public, and investors and global financial regulatory bodies have also expanded their focus on disclosures around these topics,” Sophia Hudson, a capital markets partner at Kirkland & Ellis LLP, said in commentary for the Harvard Law School Forum on Corporate Governance.

“The COVID-19 pandemic has contributed to an increased focus on [human capital management], including on companies’ safety enhancements for employees and continuity planning in response to remote work. DEI issues have garnered far greater attention since the Black Lives Matter movement, with the renewed national focus on racial justice also reverberating across corporate America,” she added.

Microsoft, Caterpillar

Those shareholder proposals to push companies to report on broader diversity and inclusion efforts have had varying levels of success. Shareholder resolution group As You Sow’s proposal for Union Pacific Corp. to annually report on its diversity and inclusion efforts earned 81.4 percent of shareholder votes in May. A similar measure by As You Sow at Caterpillar in June was rejected.

Resolutions on issues related to Democrats’ legislative proposals, such as reporting on racial and gender pay equity, have faced resistance from companies. Most recently, shareholders at Microsoft rejected a shareholder proposal from Arjuna Capital to have the tech giant report on median pay gaps across race and gender. The resolution garnered about 40 percent of votes in support at the Nov. 30 meeting.

“Diversity and inclusion in the financial services sector has been sorely lacking, to the detriment of all involved and to the detriment of all excluded,” said Meredith Benton, founder of Whistle Stop Capital and workplace equity program manager for As You Sow.

“Congress is encouraged to require meaningful reporting from these companies, not only on who their employees are, but how they are recruited, promoted, retained and compensated,” she said in an email.