AO Smith, a 150-year old family-dominated US company that manufactures water heaters and boilers, held its Annual General Meeting (AGM) last week. The Milwaukee-based company chose to hold the meeting at the National Association of Manufacturers in Washington DC.
One issue that faced the shareholders for consideration at the meeting was a resolution proposed by a fellow investor, NorthStar Asset Management. Headlined Eliminating Discrimination through Inclusive Hiring, the resolution was actually much more precisely focused than this slightly generic title indicates. The resolution called on AO Smith to consider afresh its hiring policies and practices to ensure that they appropriately consider people with records of having been arrested or imprisoned (technically, to meet the strictures of US regulation, the resolution is framed as seeking a report on these matters, but the intent is clear).
Such recruitments are known in the US, wonderfully, as ‘fair chance hires’.
One reason they are called fair chance hires is because of the racial discrepancies in imprisonment in the US. Blacks are around 14% of the US population but are 39% of its prison population (it isn’t clear how Hispanics are treated in the prison population data, but even if they were to be included in that ‘Black’ percentage, the over-representation is still 39% against around 30%). Similarly, Native Americans are around 1.5% of the overall population but 3% of those in prison. As NorthStar’s statement regarding its shareholder proposal states: “As people of color are disproportionately incarcerated, pursuing fair chance employment can also advance company diversity goals.”
The fund manager quotes AO Smith’s ambitions around diversity, as stated in previous annual reporting, and contrasts this with an apparent lack of progress on gender diversity as well as racial/ethnic diversity. It goes on to argue: “Shareholders believe that company value would be well-served by examining whether revisions to company practices related to recruiting formerly incarcerated individuals could decrease future risks related to discriminatory hiring.”
It’s the second year in a row that NorthStar has proposed such a resolution. According to its own website, in 2024 the proposal garnered 6.6% support. At a headline level, the voting results released this week seem to suggest that this year the asset manager was less successful, with around 5.5% of shareholders declining to back the company on the issue (this number aggregates those abstaining with those who supported the resolution outright). But because there are two classes of shares, and the Class A shares with 10 times the voting rights are almost entirely in the hands of the founding Smith family, the actual voting among shareholders other than the Smiths was more favourable: around 19.3% of the broader shareholder base appears to have backed the resolution (or at least to have not opposed the resolution). This is a notably high result given that many larger mainstream fund managers have reduced their support for shareholder resolutions in recent years. NorthStar proposed similar resolutions at three other companies last year, including Adobe; whether any others beyond the one at AO Smith make it to the ballot in 2025 remains to be seen.
The concept of ‘fair chance hires’ isn’t an international one. But there is a UK company with a proud record of hiring ex-offenders: another long-standing (160 years in its case) and eponymous family firm, Timpson. The retailer, famous for key-cutting and shoe repairs, proudly reports that 12% of its 4500 staff have a past criminal conviction. It provides training in prison, and has colleagues who are on Release on Temporary Licence (often referred to as day release), seeking to make the return to life outside prison more smooth. “We strongly believe in giving people a second chance in life,” Timpson asserts. This appears to work for the business: it reports that 75% of ex-offenders stay long-term with the business.
While the company has celebrated its sesquicentenary, the approach to recruiting offenders is much younger. It dates to 2002 and a visit to prison by CEO John Timpson. Timpson built a rapport with a guy called Matt, and hired him when Matt was released. But it’s now a significant part of the business: the corporate foundation spends over £1 million a year to support the employment of ex-offenders, and ‘Inclusion’ is one of five principles on which the business culture is built (the others are also wonderful words: Trust, Kindness, Loyalty, Generosity). The full principle reads: “We’re proud to employ people who find job hunting really tough, and 12% of our new recruits actually come from prison.”
There are huge positive externalities from this sort of activity: the value to the business of these loyal staff members is nothing to the value to society of successfully reintegrating those released from prison. The government’s own estimates put the cost of reoffending at over £18 billion, and the UK – like the US – has a poor record of supporting prisoners to train or to find any alternative way of making a living beyond crime.
Prison is only temporary for all but the worst offenders. We need to be better at rehabilitation, and we need to do more to reduce recidivism. We need more second chances, and more fair chance employers.
I am happy to confirm as ever that the Sense of Fairness blog is a purely personal endeavour
Inmate Race data, Federal Bureau of Prisons (data viewed as at 12 April 2025)
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