Outcome: Successfully withdrawn following the company’s agreement to institutionalize a commitment to board diversity inclusive of gender, race and national origin.
Palo Alto Networks does not have any women on its Board of Directors;
Our company’s peers, Symantec and Juniper Networks have three women and two women, respectively, on their Boards of Directors. Check Point Software and FireEye each have one woman director;
Ninety-two percent of S&P500 boards include at least one woman, and the average for the index is two women directors (2014 ISS Board Practices Study). Nearly eighty percent of MidCap companies have at least one woman director.
We believe that diversity, inclusive of gender and race, is an essential measure of sound governance and a critical attribute to a well-functioning board;
Research confirms a strong business case for diversity on corporate boards. For example, the 2012 Credit-Suisse Research Report Gender Diversity and Corporate Performance links board diversity to higher return on equity, lower leverage, and higher price/book ratios. The report suggests several explanations for this better performance including a stronger mix of leadership skills, improved understanding of consumer preferences (women control more than two-thirds of consumer spending in the U.S.), and more attention to risk. Several additional studies suggest a critical mass of at least three women directors strengthens corporate governance.
Recognizing the benefits of diversity in corporate leadership, investment firms are responding with new products and services. U.K.-based Barclays launched an exchange-traded note based on an index of companies with female CEOs or directors (the latter with a threshold of twenty five percent). Bank of America, Morgan Stanley, and Pax World Investments have similarly expanded their product offerings.
Resolved: Shareholders request that the Board of Directors report to shareholders by March 2016, at reasonable expense and omitting proprietary information, on plans to increase diverse representation on the Board as well as an assessment of the effectiveness of these efforts. The report should include a description of how the Nominating and Corporate Governance Committee, consistent with its fiduciary duties, takes every reasonable step to include women and minority candidates in the pool from which Board nominees are chosen.
Supporting Statement: We believe boards that are identical in terms of gender, race and culture may be of limited value in key parameters of corporate governance. We therefore believe that a report to shareholders should include noted changes to the Nominating and Governance Committee Charter including a commitment to diversity inclusive of gender, race and ethnicity in Board searches; a description of the Board’s plan to move forward to implement Board diversity (including directives to search firms or its Nominating Committee to bring a diverse pool of candidates to the Board); and a summary of the Board’s goals, and timelines.
We are not seeking a report on legal compliance. Rather we seek to ensure that shareholders have sufficient information to evaluate how Palo Alto Networks manages governance practices relating to board diversity (i.e., how it takes into account the fact that the lack of board diversity could affect long term shareholder value).