Talking Diversity and the SEC

Diversity is a huge issue in constructing boards of directors, and never is it so focused as for reporting companies.

Extant SEC disclosure rules contained in Regulation S-K already required disclosure of diversity information, to the extent consent from a director or director candidate agrees, including race, gender, ethnicity, religion, nationality, disability, sexual orientation or cultural background.  New guidance requires a statement as to HOW these characteristics were considered by the nominating committee or board.

Extant SEC disclosure also required a description of the process of nomination, whether it considers diversity and how.  New guidance requires an explanation of how it blended in consideration of other factors within scope of its diversity policy, including work history, military service or socio-economic characteristics.

Boards do discuss these issues, of course; one is compelled to if there is any sort of diversity program.  It is not clear to me what this new granularity has to add beyond eliciting an obvious response.  Perhaps the goal is to dig for detail to eliminate a suspected practice in some cases of tokenism?  Will we see disclosure other than a formulaic kind of recitation (“we aim for a board that is diverse, we needed a cyber expert, and  X turned out to be a widely recognized cyber expert and X also turned out to be a [pick a diverse category]!”).  Sharing the goals of diversity and preaching it in my own practice need not require government guidance on the obvious, and no board is going to say that they failed to look at all attributes of a director candidate.  Much SEC disclosure in response to ever-refined disclosure regimes results in a longer document but no increase in true qualitative data.

Today’s  Boston Business Journal carries an article about local company general counsel decrying lack of diversity in law firms while suffering lack of diversity on their own boards.  Aside from highlighting the intense topicality of board diversity, the article suggests an approach to disclosure: simple head count.  Should you care about process, or bottom line results.  As they say: “If you cannot measure it, you cannot achieve it.”


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