Thursday, June 01, 2017

Congressman urges enhancements to SEC’s board diversity rule

By Amy Leisinger, J.D.

House Financial Services Committee Senior Member Gregory Meeks (D-NY) has sent a letter to SEC Chairman Jay Clayton urging continuation of efforts to improve corporate board diversity disclosures. Signed by 29 House Democrats, including 15 other FSC members, the letter notes that the Commission’s 2009 board diversity rule has "proved inadequate" by failing to define "diversity" clearly and by allowing companies excessive discretion on what information to report.

"The SEC’s corporate board diversity rule is broken. Although many companies have complied with the spirit of the law, many other companies fall short of providing valuable information to investors regarding their boards’ racial, ethnic, and gender composition," Rep. Meeks said.

Stakeholder comments. The corporate board diversity rule requires public companies to disclose the extent to which they consider diversity when nominating and selecting board directors, but the lack of specificity in its text has led to vague disclosures of minimal use to stakeholders, the letter notes. Investors have called for improvement, submitting a rulemaking petition expressing concerns and recommending that the SEC require companies to share the gender, race, and ethnicity of board members. In addition, former SEC officials have recognized the need for change. Past Commissioner Luis Aguilar noted that some companies have done the bare minimum by providing only abstract information regarding diversity efforts, and former SEC Chair Mary Jo White directed the agency’s staff to review the rule and consider potential enhancements prior to her resignation.

Business leaders have also acknowledged the benefits (and minimal burdens) associated with more comprehensive diversity disclosures, according to the letter. Specifically, the SEC’s Advisory Committee on Small and Emerging Companies recommended that the SEC require specific disclosures about the self-identified race, gender, and ethnicity of their board members and nominees, the letter explains.

From an industry standpoint, Christopher A. Pickett, leader of the Securities & Financial Services industry group and chief diversity officer at law firm Greensfelder, Hemker & Gale, P.C., notes: "The securities industry is moving in the right direction after recently struggling with how it can diversify its workforce, but progress has been slow and we haven’t seen nearly the volume of diversity initiatives as in many other industries."

Formal rulemaking recommended. The letter notes that Chairman Clayton has demonstrated a willingness to work with fellow commissioners, staff, and committee members to monitor issues with diversity disclosures but urged him to go beyond compliance monitoring and propose a new corporate board diversity rule for public comment.

"It’s time to put words into action and I hope that the new Chair initiates that process through formal rulemaking," Rep. Meeks concluded.