Securities Law Blog

Last month, SEC Chair Mary Jo White announced that her office was reviewing the agency’s current disclosure rules with respect to diversity of public company boards of directors.  This announcement came on the heels of a report issued by the Government Accountability Office in December 2015 recommending that the SEC revise its current regulations surrounding disclosure of corporate board diversity and a letter from Congresswoman Carolyn Maloney (D-NY), a senior member of both the House Financial Services Committee and House Oversight and Government Reform Committee, to SEC Chair White.  Congresswoman Maloney wrote her letter in response to the GAO report, urging that amendments be made to the proxy statement rules to require that companies disclose each board nominee’s gender, race and ethnicity. This also echoes the request made in a petition submitted from nine large public pension funds to the SEC in March 2015.  

The current proxy rule with respect to board diversity is set forth in Item 407(c)(2)(vi) of Regulation S-K, which has been in effect since 2009.  Under this rule, an issuer is required to disclose whether it has a policy with regard to the consideration of diversity in identifying director nominees and, if so, how such policy is implemented and how the effectiveness of such policy is assessed.  The rule is intended to assist investors with investment and voting decisions.  Investors and SEC Chair White have expressed concern that the existing disclosure requirements may not provide the intended information, in part because the rule does not provide a definition of “diversity”.  The GAO report noted that many companies include characteristics such as relevant knowledge, skills and experience when describing diversity.

SEC Chair White has continued to address the topic of board diversity in interviews subsequent to last month’s announcement that her office was reviewing the current disclosure rules to determine whether additional guidance or rulemaking is warranted.  In what may be her last year leading the SEC in this election year, it appears that the issue of board diversity is high on her agenda.

It may take some time before new rules are implemented.  With two current vacancies, the SEC is currently operating with only three of its allotted five commissioners. Moreover, any such rules would first need to be proposed and then subject to public comment, before they could be adopted.  Accordingly, it is questionable whether any new rules will be enacted this year.  But the issue is not going away as both investors and Congress are likely to continue to pressure the SEC for rule changes that will supply investors with more meaningful disclosure and issuers should be prepared to provide additional information in their SEC filings about the composition of their board in the near future.