Northeastern State Treasurers, Asset Managers Form Corporate Diversity Coalition

Corporations are receiving pressure from shareholders to better align with modern environmental, social, and governance (ESG) concerns, including de-carbonization and retracting from organizations with poor ethical standards.

Now, a group with about $283 billion in assets under management has unified to push for diversity among corporate governance boards “inclusive of gender, race, and ethnicity-at companies headquartered in the Northeast,” the Northeast Investors’ Diversity Initiative said in a statement. “The investor coalition intends to leverage their corporate relationships and shareholder rights to encourage boardroom diversity and inclusion.”

The group is made up of the state treasurers of Rhode Island, Connecticut, Maine, Vermont, Massachusetts, and New York, as well as asset management firms Boston Trust Walden, Trillium Asset Management, Zevin Asset Management, and Pax World Funds.

The coalition has cited numerous reports and studies asserting that diversity in a board’s governance body is beneficial for returns.

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However, despite increasing demands by investors for more diversity, progress in these firms has been slow, according to a May 2019 report from Wilshire Associates. The report cited statistics showing that fewer than 200 of 7,000 mutual funds are run by women, and that women accounted for just over 10% of investment partner or equivalent roles. Additionally, it said people of color make up 22% of the venture capital workforce, with African American employees and Hispanic or Latino employees at just 3% and 4%, respectively.

“An increasing body of research shows that companies with stronger diversity at the senior level tend to outperform those companies that lack diverse leadership teams,” said Rhode Island General Treasurer Seth Magaziner. The state’s current policy is to vote against all director nominees sitting on boards with less than 30% diversity, inclusive of gender and ethnicity. So far in 2019, they’ve voted against 73 companies for a lack of diversity.

New York in mid-October called for companies to adopt the “Rooney Rule”, asserting “companies have leadership teams that look like they’re out of the 1950s.” The Rooney Rule is a 2003 National Football League policy requiring that every team with a head coaching vacancy to interview at least one or more diverse candidate.

Companies in the top quartile for racial and ethnic diversity are 33% more likely to outperform on profitability than companies in the bottom quartile, according to a study by McKinsey & Co. McKinsey also found that companies in the top quartile for gender diversity on their executive teams were 21% more likely to experience above-average profitability than companies in the bottom quartile.

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Tags: Activism, Asset Management, Diversity, funds, Governance, northeast, Shareholder Activism, Treasurer

Two men have pleaded guilty to participating in a massive fraud involving a solar energy company that defrauded investors of approximately $910 million, according to the US Attorney’s Office for the Eastern District of California. In a parallel action, the Securities and Exchange Commission also charged the men for their roles in the alternative energy tax credit Ponzi scheme.

“Joseph Bayliss and Ronald Roach each played an important role in this scheme to sell investment opportunities offered by certain solar energy companies in the business of making, leasing, and operating mobile solar generators,” the US Attorney’s Office for the Eastern District of California said in a release. But “in reality, thousands of the purportedly profitable generators were never even manufactured, let alone put into use, and the vast majority of revenue to investors came from investor money, not from actual lease payments.”

The company allegedly lured investors by claiming there were favorable federal tax benefits associated with investments in alternative energy. The company structured the transactions to maximize the tax benefits to the investors. Investors would buy the generators without ever taking possession of them, and then would pay a percentage of the sales price and finance the balance with the company.

The investors would then lease the generators back to the company, which, in turn leased them to third parties. A portion of the lease revenue would be used to pay the investors’ debts to the company and to the investors. However, the third‑party leases produced little income, and the company allegedly paid early investors with Ponzi-like payments contributed by later investors.

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The complaint alleges Bayliss provided bogus technical certificates of inspection for generators that he either never inspected or never existed. Meanwhile, Roach compiled financial statements that falsely reported that the business had real and significant revenue from real leases.

Roach “lent the imprimatur of his accounting firm to the bogus financials, and in some cases disseminated them directly to investors,” said the complaint. “While investors were fleeced, Bayliss and Roach each made millions off the scheme.”

The company boasted it was a major player in its industry with thousands of generators in the field, lucrative contracts with big customers, and extensive experience in making and maintaining the generators and finding customers for them.

“That was all a sham,” said the SEC.

In fact, the company only made about one-third of the generators that it claimed to have sold to investors. Recent efforts by investors to locate the generators have identified a little more than 5,800 of the approximately 17,600 generators for which the company entered into investor contracts. Investors paid hundreds of millions of dollars for generators that never existed, said the SEC.

The SEC’s complaint charges the two with violating the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement, and civil penalties. Roach and Bayliss have consented to permanent injunctions, with monetary relief to be determined by the court on motion by the SEC at a later date.

Roach and Bayliss are schedule to be sentenced in late January. Roach faces a maximum statutory penalty of 10 years in prison, while Bayliss faces a maximum statutory penalty of five years in prison.