The issue of diversity has expanded from the workplace to the corporate boardroom, with initiatives spearheaded by investors and other stakeholders to address the lack of diversity on corporate boards. These initiatives are likely to lead to pressure on companies to enhance their disclosures about their board members and take steps to diversify their boards. This article describes some of these board diversity initiatives and the steps employers can take now to address possible concerns.
In March 2015, a group of investors, including representatives from pension and retirement funds, filed a petition with the U.S. Securities and Exchange Commission (SEC) seeking enhanced disclosures to allow investors to evaluate the gender, racial, and ethnic diversity of nominees for corporate director positions.
In addition, during the 2015 and 2016 proxy seasons, investors filed board diversity shareholder proposals with several companies, asking the companies to embed in their corporate governance policies a commitment to gender, race, and ethnic diversity in board searches and to include women and minority candidates in the pool from which board nominees are chosen.
Similarly, in July 2016, a group consisting of chief executive officers and institutional investors issued “Commonsense Principles of Corporate Governance” for public companies, providing what they described as a “basic framework for sound, long-term-oriented governance.” These principles included the following statement with respect to board diversity:
Directors should have complementary and diverse skill sets, backgrounds and experiences. Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.
The SEC has the authority to issue rules requiring that public companies disclose information that is “material” to investors. In a recent address, SEC Chair Mary Jo White reported that the SEC’s staff was preparing a recommendation to the Commission to propose amending the disclosure rules to require companies to include in their proxy statements more information about the diversity of their board members and director nominees.
What Can Employers Do Now?
- Evaluate the composition of the board of directors with respect to skill sets, backgrounds, and experiences.
- As board vacancies occur, evaluate the process by which the pool of director candidates is developed.
- Talk to investors and other stakeholders to gain insight concerning issues surrounding board diversity.
- Evaluate the disclosure relating to the diversity of the board; consider modifications to the disclosure based on investor input.
- Review the corporate governance guidelines concerning board diversity.
by Carolin Sobin, Ogletree Deakins Nash, Smoak & Stewart
Compliments of Ogletree Deakins Nash, Smoak & Stewart – a member of the EACCNY