Intense scrutiny regarding the role of environmental, social and governance (ESG) issues in proxy voting has only intensified in the wake of the Trump Administration’s executive orders on diversity, equity and inclusion (DEI). Meanwhile, a late shift in SEC guidance has injected uncertainty into the shareholder proposal exclusion process.
Boeing’s upcoming annual meeting serves to illustrate the complex landscape that companies and their investors are being asked to navigate this proxy season. The agenda features two DEI-focused shareholder proposals with similar language but starkly different goals. Whereas Proposal 4 calls for additional reporting on the company’s approach to DEI and associated risks, Proposal 5 calls for a third-party civil rights audit to identify risks relating to the removal of DEI policies.
In this post, we discuss Boeing’s DEI predicament and the shareholder proposals on its AGM ballot, along with Glass Lewis’ approach to helping our investor clients assess them.
How Did Boeing Get Here?
A succession of tragedies put Boeing under intense scrutiny even before ESG and DEI became four letter words. Despite some musings on social media, no link has been established between the company’s operational failures and its approach to hiring or human capital management (tweets from long-term shareholders asking whether quarterly reporting pressures and poorly structured incentives served to divert management’s attention away from safety and quality assurance have not received quite as much attention). Nonetheless, the company’s DEI policies – and even those of its supply chain -- have been cited as a potential factor in several cases. In April 2024, Texas Attorney General Ken Paxton raised concerns that DEI was “compromising …manufacturing processes” in an investigation of Spirit AeroSystems, a parts supplier that was subsequently acquired by Boeing.
Things came to a head last October in relation to a plea deal covering the 737 MAX crashes from 2019. In the view of Judge Reed O’Connor of the US district court for the Northern District of Texas, the company failed to sufficiently push back on boilerplate Department of Justice language referencing “the Department’s commitment to diversity and inclusion” in selecting an independent monitor. This prompted the judge to ask for information on how the company's DEI policies impacted its compliance and ethics obligations.
Boeing responded by dismantling its DEI department (as part of wider organizational restructuring and layoffs), removing references to DEI goals and “aspirations” from its website and publicly affirming its commitment to a merit-based workplace, with hiring based on equal opportunity rather than fixed outcome targets. While the ultimate rejection of the plea was primarily based on concerns about the DOJ’s policies for appointing an independent monitor, the judge’s order also questioned Boeing’s approach, noting that “despite revisions to its website, Boeing did not abandon its DEI commitments in its latest briefing to the Court.”
The Backlash to the Backlash to the Backlash
Judge O’Connor’s skepticism regarding Boeing’s response appears to be reflected in one of the shareholder proposals on the AGM agenda, which tracks the specific language cited by O’Connor in asking the company to report on “the extent of its resources and personnel – across its divisions – devoted to [DEI] aspirations, and analyzing the risks that the Company’s DEI policies pose to shareholders” (emphasis added).
Meanwhile, Boeing’s failed attempts to preserve the plea agreement also raised the eyebrows of shareholders who took the move away from DEI at face value – prompting a different shareholder proposal that urges the company to commission a third-party civil rights audit in response to the recent restructuring. The proposal and supporting statement highlight the potential impact of the changes “on talent recruitment, advancement, and retention, customer and revenue growth, and other business objectives.”
Boeing applied to the SEC for permission to exclude the civil rights audit proposal on the grounds that it was “so inherently vague or indefinite that neither … shareholders … nor the Company … would be able to determine with any reasonable certainty exactly what actions or measures the Proposal actually requires”. The SEC rejected the exclusion request. Boeing did not apply to exclude the ‘DEI resources/aspirations’ proposal.
Risk/Reward
Investors with a material financial stake in Boeing may question the necessity and potential benefit of adopting either of these shareholder proposals. Regarding the former, it’s certainly possible that Boeing is rebranding its DEI policies rather than truly moving away from the underlying principles. But unlike most other U.S. public companies, the defense and aviation contractor’s customer base is made up largely of governments and airlines. This means it is almost certainly going to continue facing intense scrutiny of its diversity-related practices, along with significant business, legal and compliance risks. It seems unlikely that Boeing needs to expend time and resources on additional reporting to confirm this. Moreover, it is not at all clear that the requested disclosure would be in the best interests of the company or its shareholders – after all, publishing an interdepartmental inventory of “DEI aspirations” would seem to heighten, rather than mitigate, its exposure to those risks (at shareholder expense, no less).
Despite reflecting an entirely different set of assumptions, the civil rights audit proposal raises similar concerns -- at what would almost certainly be an even higher price, given that third-party civil rights audits typically require hiring a law firm, sometimes supplemented by a DEI-focused consultant. It could be argued that, regardless of the price, conducting a civil rights audit could have positive impacts on Boeing’s workforce and its ability to attract and retain talented employees, and we expect some investors to support the proposal on that basis. These audits may also benefit companies by mitigating the risk of consumer boycotts, which can cost far more. But unlike at consumer-facing companies, in this case the potential benefits of an audit will likely be largely limited to those internal stakeholders -- given its customer base, Boeing is somewhat insulated from any potential reputational and bottom-line implications of public backlash to its recent rollback of DEI policies.
Damned If You Do….
Not only did Boeing’s attempts to preserve the plea deal fail, they raised further concerns from all sides, leaving the company stuck between a rock and a hard place. Having to deal with two opposing DEI-related shareholder proposals on the same ballot creates a headache for the company and its shareholders, and could result in conflicting messages from the vote results and a potentially inefficient use of resources. Moreover, both proposals call for the provision (and expenditure) of additional resources in an area where the company’s existing reporting is fairly robust, and on par with peers.
Given Boeing’s relatively high level of government, regulatory and legal exposure and insulation from potential consumer backlash, it seems far more likely that shareholder value could be harmed by providing more disclosure on this topic, regardless of whether it is intended to affirm or critique DEI policies.
Glass Lewis’ Approach
When assessing shareholder proposals, our benchmark voting policy generally places the onus on the proponent to make a compelling case that the issue is financially material to the company, and that the board’s existing actions on the issue are insufficient. Absent evidence of illegal or unethical conduct, our default view is that the board and management will make decisions that are in the best interests of shareholders.
We view measures related to human capital management as financially material for all companies, potentially resulting in lower attrition, higher employee engagement and more access to the broadest pool of talented employees. However, our ultimate vote recommendations are made on a case-by-case basis, reflecting the risk/reward balance of the specific proposal request in the context of the company that received it.
In this case, based on the factors discussed above, our benchmark policy recommended rejecting both proposals. But as a proxy advisor, Glass Lewis is mindful that institutional investors make their own voting decisions on shareholder proposals. Our analysis typically forms just one of several inputs that investors consider in determining which vote decision is consistent with their own stewardship approach and associated proxy voting policy. Although we take great care in forming and explaining our own benchmark policy vote recommendations, much of our focus is on helping our clients get a full view of the issues, whatever their perspective.
In addition to analysis and recommendations, our Boeing report includes:
- The proposal text and a summary of arguments made by the proponent and the board;
- Details regarding the proponents, including data on their history of submitting shareholder proposals;
- Extensive background on the issues involved, as they relate specifically to Boeing and covering the wider political, legal and governance landscape; and
- An overview of the company’s existing reporting on DEI and human capital management, and of how it compares to two of its industry peers.
See here for more on Glass Lewis’ corporate governance research.
