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In December of 2009, the U.S. Securities and Exchange Commission (“SEC”) issued proxy disclosure rules that enhanced the disclosures required in a public company’s annual proxy statement.  Specifically, the SEC directed that boards must disclose “whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director” and if the board has a policy pertaining to the consideration of diversity in identifying director nominees.  As we are now in the midst of the 2012 “Proxy Season”, it is worthwhile to look at what impact, if any, these amended rules on proxy disclosures have had on boardroom diversity.

It is important to note that the SEC’s amended rules on proxy disclosures did not require companies to consider diversity in the board nomination process.  Nevertheless, the amended rules were issued at a time when the SEC was emphasizing the importance of boardroom diversity. In other words, this was the SEC’s way of saying “seriously, we want boardroom diversity.”  And not just diversity in a generic sense, but specific to gender and ethnicity.  In September of 2009, SEC Commissioner Luis Aguilar gave a speech at Stanford Law School on the topic of boardroom diversity.  In his speech, Commissioner Aguilar stated that while he agrees “that ‘board diversity’ encompasses many ideas, we must recognize that corporate boardrooms across the country lack diversity in terms of the ethnicity and gender of their members”.  

Regardless, the amended rules the SEC did not define “diversity”.  Which of course leads to the question, why didn’t the SEC define diversity?  Perhaps it was the push-back the SEC received during the comment period.  Consider this statement from TIAA-CREF’s Comment Letter to the SEC:  ”We do not believe, however, that diversity should be defined the same way for all companies.  Diversity of perspectives can be achieved through consideration of a number of different criteria, including gender, ethnicity, geographical origin, educational background, professional experience or any number of other factors.  Each company should take into account factors based on its own business model and specific needs and disclose the rationale for the criteria used.”

As a result of the SEC’s failure to define diversity, many companies take a broad view of the term in their proxy statements.  Starbucks recent Proxy Statement addresses the issue in a manner typical of many companies:  ”Each candidate should contribute to the board of directors’ overall diversity — diversity being broadly construed to mean a variety of opinions, perspectives, personal and professional experiences and backgrounds, such as gender, race and ethnicity differences, as well as other differentiating characteristics.”  Many companies will continue to take these broad positions on boardroom diversity as a means of not offending any of their customers/clients.  Furthermore, the SEC does not appear willing to take any additional steps in mandating boardroom diversity — certainly not anything close to those taken by many European countries which now require a percentage of women on corporate boards. 

So, where does this leave us?  The figures for public companies continue to show a  disparity in gender and ethnic equality in the boardroom — despite the fact that studies show companies with diverse boards are more profitable.  It is clear that the amended SEC Proxy Rules have not had the SEC’s desired impact of increased boardroom diversity.  Regardless, there is a growing public chorus for such diversity and it is unlikely that the SEC will walk away from this issue.  Many believe that November’s Presidential election will set the course, one way or the other, for the SEC’s next move in this battle.

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