Here’s a clever way for activists to force an awkward policy fight at a corporation: an asset management fund wants a California software firm to report on the risks of omitting gender identity and sexual orientation from its employment policies — and the Securities and Exchange Commission has ruled that yes, the company has to include that proposal in its proxy statement.
Walden Asset Management, a socially responsible investment fund with $9 billion under management, wanted to put that proposal to CorVel Corp., which makes software for the healthcare sector and has about $595 million in annual revenue.
Right now, CorVel’s equal employment policy does mention sex and gender, but does not specifically mention “gender identity” or “sexual orientation.” So Walden submitted a shareholder proposal asking CorVel to study the risks of excluding those terms and to publish a report on the findings.
CorVel asked the SEC for permission to omit Walden’s proposal from the proxy statement, arguing under various SEC rules that the company had either already implemented Walden’s idea, or that the proposal misleadingly implies that CorVel allows discrimination, or that employment practices shouldn’t be subject to shareholder proposals like this.
Last week the SEC replied: no dice. CorVel should include Walden’s proposal in its next shareholder meeting.
Now, let’s not kid ourselves — this proposal, like most shareholder proposals, will probably fail if it ever reaches an actual shareholder vote. Walden’s goal was to set the precedent that LGBTQ equality is a discussion that shareholders can have.
So to that extent, last week’s no-action letter from the SEC was a victory for activists and a setback for firms that want to keep a tight grip over their employment policies. After all, many companies would rather amend their policies to make Walden’s request a moot point, than endure a messy fight in front of shareholders that exposes the company to criticism that it somehow supports discrimination.
Walden, to no surprise, was delighted. “This decision preserves shareholders’ ability to file proposals on this important issue and we are glad to see the SEC reaffirm LGBTQ equality as a topic that shareholders have a right to weigh in on,” Amy Augustine, director of ESG investing at Walden, said in a statement.
No word from CorVel yet on whether the company will put the proposal in its proxy, exclude the proposal and risk an enforcement action, or just modify the company’s policy language so that Walden will drop the proposal and go away.
Parsing the Proposal
The correspondence in the SEC’s no-action letter is worth reading because it explores some currently tricky discrimination and equal opportunity issues at length. On one side, we have clamor for more tolerance of gay, transgendered or non-binary people. On the other, we have clamor for the religious freedom not to tolerate those groups.
Then along comes Walden, deftly phrasing its shareholder proposal to force a conversation on the subject.
For example, as we noted above, CorVel’s employment policy doesn’t mention sexual orientation or gender identity; it only mentions “gender.” Meanwhile, CorVel’s Code of Ethics has an anti-discrimination clause, but that clause does not include the word “gender.” It refers to race, creed, color, sex, and “any other classification” protected by law.
Taken together, that language creates a grey area. LGBTQ advocates argue that gender is not the same as gender identity; gender is the anatomy you had when you were born, while gender identity is what you feel you are as a person.
So CorVel has inconsistent language between its employment policies and its Code of Ethics — and that, LGBTQ advocates would say, can create the impression that discrimination on the basis of sexual orientation or gender identity might be allowed. Especially since CorVel operates across the country, and 21 states have religious freedom laws that can allow at least some discrimination against LGBTQ persons.
Or, as the Walden wrote in defense of its proposal:
The fact that the company operates in 43 states exposes it to a patchwork of state laws regarding LGBT discrimination, which could yield different discrimination stances between the company’s own operations.
Right away, then, compliance officers or policy management gurus might want to revisit the language you use about gender, sexual orientation, and gender identity. Is that language clear and precise? Is it consistent in all documents?
Now, we still have the more fundamental mess that as a country, America hasn’t reached consensus on what our ethical values and priorities are about one person’s sexual orientation and gender identity, versus another person’s religious freedom to discriminate against the first person. And we’re not going to reach that consensus until we bitterly litigate these issues all the way to the Supreme Court, with running firefights on social media every step of the way.
But imprecise language in policies and Codes — that doesn’t help.
More Proposals to Come?
Let’s get back to the clever part from Walden. One of CorVel’s arguments was that the SEC had already decided issues like this in 2018, with a no-action letter to Cato Corp., where the SEC said Cato could exclude a shareholder proposal about sexual orientation and gender identity.
In Cato’s case, however, shareholders were asking that company to change its policy. In this case, Walden is asking CorVel to assess the risks of leaving its anti-discrimination policy as written — because, Walden says, the current legal landscape for gay and transgendered persons is unclear; and maybe that lack of clarity on CorVel’s part might harm shareholder value if the company is later found liable in some litigation dispute. So hey, can we have a report on that?
Of course CorVel sees the issue differently. It argued that Walden has gone after CorVel before, with a proposal in 2018 that did ask the company to modify its employment policies. This new proposal might be asking for a report about risks, but “the proposal has the same underlying concerns and essential objective” as last year’s — to get CorVel to change its policy.
Or, as CorVel wrote:
The proposal is … inextricably based on the materially misleading premise that the company’s EEO policy does not prohibit discrimination on the basis of sexual orientation and gender identity for the sole reason that it does not explicitly include the words “sexual orientation” and “gender identity” … Despite the fact that, as a legal matter, the omission of the words “sexual orientation” and “gender identity” does not mean that the company’s EEO policy permits discrimination on those bases, the language of the proposal misleadingly implies that this is the case.
So by allowing this proposal for a risk assessment to proceed, Walden can use that victory to pressure CorVel into changing its policies. That’s what CorVel is saying.
Let’s be honest: CorVel is correct. Walden can use this victory to negotiate further policy change with CorVel. It was a stunt move on Walden’s part, and it worked.
Ethics and compliance teams grappling with religious freedom and anti-discrimination policies might want to consider that point as your own company mulls what to do with these seemingly incompatible values.