The US Securities and Exchange Commission (SEC) has ruled that shareholders have the right to raise the question of LGBTQ+ employee healthcare benefits at companies, rejecting arguments made by Walt Disney, Johnson & Johnson and JB Hunt Transport Services that the issue is a matter of ordinary business.
It is the first time the securities regulator has opined on the topic and opens a new front on what investors can challenge companies on when it comes to human capital management.
Trillium Asset Management’s director of shareholder advocacy, Hyewon Han, welcomed the decision. “It continues to build on the precedent that this SEC has set, which is that general employee matters may be discussed in proposals if it meets the significant social policy threshold,” she said.
The US SRI investor is behind the proposal at JB Hunt Transport Services, which calls on the trucking firm “to adopt and publicly disclose a policy (with details and timing at the discretion of the company) of equitable healthcare coverage for all employees, regardless of sexual orientation or gender identity”.
In 2021, the SEC published new guidelines on the “no action” process, the mechanism by which companies can petition the regulator to exclude proposals from investors by appealing to rules governing it.
As part of that shake-up, the SEC stated that it would pay more attention to the significance of the policy issue being raised by a shareholder when it came to the Ordinary Business rule (Rule 14a-8(i)(7)).
“The responsible investment community has tested things like paid sick leave during the covid pandemic, which passed, and I think made human capital management an easier issue to bring to companies,” Han said.
Issues like workforce pay equity data, workforce practices tied to inequality and other topics that fall under human capital management have also not been considered ordinary business in recent years, she added.
“This is also a significant social policy issue – it’s become such a big public debate in the US as to whether LGBTQ+ Americans deserve healthcare or not,” Han told Responsible Investor.
The contentious nature of the topic in the US is reflected by the fact that the filer of the proposals at Johnson & Johnson and Walt Disney is a conservative think tank, the National Legal and Policy Center.
Its resolution challenges the companies on their provision of “health benefits to employees who suffer gender dysphoria/confusion”.
Both companies, the group states, “boast” about their “100 percent score on the Human Rights Campaign’s Corporate Equality Index (CEI) and HRC’s designation as a ‘best places to work for LGBTQ+ equality’”.
The corporates are requested to report on “compensation and health benefit gaps, which should include how they address dysphoria and de-transitioning care across gender classifications, including associated reputational, competitive, operational and litigative risks, and risks related to recruiting and retaining diverse talent”.
The National Legal and Policy Center filed the proposal in 2023 at Visa, but the payment giant was given permission by the SEC to exclude it because of a filing technicality.
Last year, Trillium also filed on the issue at LKQ, but withdrew it after the fund discovered that the auto parts firm did have equal benefits but was misreporting.
Returning to this year’s filing, the SEC also rejected JB Hunt Transport Services’ argument that Trillium’s proposal was vague or indefinite (Rule 14a-8(i)(3)) or that it had been substantially implemented (Rule 14a-8(i)(10)).
The company also put forward an unsuccessful procedural objection, suggesting that the fund had “failed to prove its eligibility to submit the proposal”.
“It’s basically that I, as an agent of Trillium, wrote that the fund intends to hold the shares instead of the fund officer,” Han explained. She noted that in “dozens” of previous filings the point has never previously been challenged.
Han told RI that Trillium filed at JB Hunt Transport Services after looking at the firm’s score against the CEI index, as part of a yearly exercise it undertakes for its holdings. The assessment found the the firm scored poorly on inclusive benefits.
“JB Hunt does not specifically mention gender dysphoria, gender reassignment, sex reassignment, but has a blanket position on all cosmetic plastic reconstructive surgeries,” she said.
“They argued that their policy is applied equally but we think that’s not the case. We’re saying that you might have a general exclusion, but in practice it ends up affecting a specific population of people who are a protected class under civil rights laws.”