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Gentex Balks At Diversity Proposal
The Calvert Social Index Fund, a $28.7 million fund that holds 428 shares of Gentex stock and is part of a broader investment group that manages $8.6 billion in assets, is asking Gentex shareholders to back a resolution that would require the corporation’s board of directors or nominating committee to “take every reasonable step to ensure that women and minorities are a routine part” of every search the corporation takes in the future for new directors.
Gentex directors are opposed to the resolution and have unanimously recommended a “no” vote by shareholders, although the board “agrees with the merits of achieving diversity in all aspects of the company’s governance and operations, and the company has and expects to continue to work hard to bring diversity throughout the company,” stated the board’s recommendation that accompanied the Calvert Social Index Fund’s proposal in Gentex’s annual proxy statement.
Gentex shareholders will vote on the resolution at their annual meeting scheduled for May 14 at the Amway Grand.
In their response, Gentex directors stated that the company is already committed to equal opportunity and diversity and that having to report annually on processes followed to encourage board diversity would impose an unnecessary burden that “could disrupt an on-going process of determining the appropriate size and composition of the board, which by its very nature is extremely sensitive and requires maximum flexibility.”
The proposal “would not enhance the current board selection process, would not further the company’s commitment to diversity, and would involve substantial costs, time, effort, without corresponding benefit. Thus, the proposal is not in the best interests of the company,” directors stated in the proxy, filed last week with the U.S. Securities and Exchange Commission
Increasing diversity among corporate boards of directors is one the Calvert Social Index Fund’s primary issues, said Nikki Daruwale, a senior analyst and shareholder advocate coordinator for the Bethesda, Md.-based Calvert Group that includes the Calvert Social Index Fund.
The Calvert Group routinely screens the corporations whose shares it owns for business behaviors involving a myriad of social issues such as diversity, environmental compliance and practices, and the treatment of workers.
While Gentex is a company that values diversity among its workforce, that commitment is not apparent at the board level, Daruwale said.
“They appreciate diversity, but it hasn’t played out to us in terms of what is visible at the company,” she said. “They haven’t acted on it.”
Gentex’s nine-member board of directors consists of white males.
Daruwale does not take issue with any particular action or behavior of the Gentex board and is complimentary of the willingness in the past of Gentex executives to discuss the issue with representatives from Calvert. The Calvert Social Index Fund says that as a socially responsible investment fund, is merely acting on a core principle of promoting gender and racial diversity among the boards at companies in which it invests, she said.
In the wake of corporate scandals involving the likes of Enron, WorldCom and others, board diversity has taken on a heightened importance to some investors, Daruwale said. Increased diversity through the addition of women and minorities can generate an even greater array of opinions and perspectives, as well as increased board independence and accountability, Daruwale contends.
“If you have a diverse board, not only are they independent but there are also a diversity of ideas and thoughts that come into play,” she said. “There are deeper lines of accountability.”
The Calvert fund does not ask companies to actively recruit minorities and women, only that they include diversity “as part of the criteria” in the selection process when filling a board vacancy, Daruwale said.
Calvert believes that board diversity is “not just a social imperative, but also a strategic one,” the fund states in its proposal on Gentex Corp.
The Calvert Social Index Fund holds shares in about 640 large- and mid-cap companies — Microsoft Corp., Johnson & Johnson, IBM and Pfizer Inc. among them. The only other West Michigan firm in which the fund invests is Herman Miller Inc.
The Gentex shareholder proposal is one of 20 the Calvert Group filed last fall and this spring with companies whose shares it holds. Nine of the resolutions involve board diversity.
The general success of shareholder resolutions is spotty, said Jeffrey Thomison, an analyst with the brokerage firm Hilliard Lyons. Contributing to their defeat is the voting power held by corporate directors that often hold large numbers of shares in the company, combined with shareholders who often take a neutral view of outside resolutions, especially if the company is performing well and there’s no suggestion of impropriety, as is the case with Gentex, Thomison said.
“I haven’t seen a lot of shareholder resolutions be successful,” he said.
At the Calvert Fund, Daruwale doesn’t stake claim to any great success with the organization’s shareholder resolutions. The fund’s concerns are occasionally resolved and the resolution withdrawn when the corporation takes action on its own, as was the case this year at pharmaceutical giants Johnson & Johnson and Pfizer, both of which were pushed to provide greater disclosure of their protocols governing clinical trials.