ISS Drops DEI Factors from U.S. Board Voting Recommendations Amid Political Pressure
Institutional Shareholder Services (ISS), a leading proxy advisory firm, announced it will no longer consider diversity factors such as gender and race in its voting recommendations for U.S. corporate boards. The decision follows mounting political scrutiny over Diversity, Equity, and Inclusion (DEI) policies, particularly after the Supreme Court struck down race-based affirmative action in college admissions. The shift aligns with broader corporate and investor adjustments to DEI policies amid legal and regulatory uncertainty.
The move comes after increasing government pressure, particularly following Donald Trump’s executive order banning DEI-based preferences in federal contracting. Additionally, in 2023, 21 state Attorneys General warned ISS that its support for DEI and climate-related issues could conflict with its fiduciary duty to prioritize clients’ financial interests. In response, ISS stated it will indefinitely halt consideration of diversity criteria when making voting recommendations for board elections under its Benchmark and Specialty policies.
ISS acknowledged the ongoing debate around corporate DEI strategies, stating that companies and investors will need to determine their own approaches to the shifting legal and regulatory landscape. The policy shift marks a significant rollback in DEI-related corporate governance practices, potentially influencing how companies approach board composition and diversity initiatives moving forward.
ISS said:
We anticipate that institutional investors and U.S. companies will have a range of perspectives on DEI, including whether and how companies can or should adapt their specific policies and practices to the evolving market and governmental activity.
