RELEASE: CAP Outlines Steps the SEC and Corporations Can Take to Diversify Boards
Washington, D.C.— Ahead of an expected, proposed, Securities and Exchange Commission (SEC) rule—which would require that companies disclose diversity information about their boards—a new report from the Center for American Progress outlines what a meaningful board diversity disclosure framework would look like.
The report suggests that the SEC require publicly traded companies to:
- Disclose diversity information about members of the board based on voluntary, self-identified information, including race, ethnicity, gender, and LGBTQ+ status as well as veteran status and disability status for directors and members of a company’s nominating committee.
- Disclose information about whether a company has policies and procedures around consideration of race; ethnicity; gender; and LGBTQ+, disability, or veteran status in the board recruitment and selection process and/or around building board diversity. If so, they should be required to provide a description of those policies and procedures—and, if not, explain why not. In addition, companies should be required to disclose whether and how they assess the effectiveness of these policies and procedures and any follow-up changes made to address shortcomings.
- Use standardized terminology and reporting formats established by the SEC for purposes of these disclosures. Presumably, these would be consistent with any new terminology and reporting formats established under the SEC’s proposed rule on workforce disclosure.
The report also discusses steps corporations can take themselves to ensure that they have diverse boards, including expanding upon a board diversity matrix—like the one recently proposed by NASDAQ—which lists the self-identified gender and ethnic background of board members. CAP’s report suggests that the matrix should also include information about skills, experiences, and attributes relevant a company’s strategy and risk management. The report also suggests that companies work to create a diverse candidate pool for open board positions by forming new partnerships with membership or entrepreneurship organizations in diverse communities, such as the NAACP, and by employing the Rooney rule when interviewing candidates.
“As things stand now, corporate boards are not representative of the communities where companies do business,” said Alexandra Thornton, senior director of tax policy and co-author of the report. “Both companies themselves and the SEC must work to address the appalling lack of diversity in corporate boardrooms, ensuring that companies develop new sources for qualified candidate pools, reform their selection processes, and follow a standardized disclosure framework so that investors can compare firms on this important issue.”
Read: “How To Make Corporate Boards More Diverse” by Alexandra Thornton and Anjunae Chandran
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