Corporate Governance

Corporate Governance Reform and the SEC: Diversity on the Board

By J. Robert Brown

We are discussing Exchange Act Release No. 60280 (July 10, 2009), the SEC's recent set of rule proposals designed to improve disclosure in connection with the corporate governance process.

We have written a great deal on this Blog about the lack of diversity on corporate boards and the need to expand the applicable pool of candidates.  Diversity can include gender and race but it can also include directors who bring a different perspective to management.  Exxon-Mobile might have benefited from an outspoken environmentalist on the board.  In fact, most directors look much like their CEO, something we have called mirror image boards.  Some countries have grown impatient with the market and imposed quotas, with positive results.  Norway is an obvious example.

The current corporate governance proposals put out by the Commission dip gingerly into the area.   According to the proposing release:

• Currently, Item 407(c)(2)(v) of Regulation S-K requires disclosure of any specific minimum qualifications that a nominating committee believes must be met by a nominee for a position on the board. We are interested in understanding whether investors and other market participants believe that diversity in the boardroom is a significant issue.  As indicated below, we are requesting comment on whether additional disclosure in this area should be required.

It's only a question but one that deserves a serious response.  If companies are forced to start reporting percentages (something that can usually but not always be determined visually), it will facilitate the creation of tables that compare companies.  This was one of the advantages of the "total compensation" column required in the executive compensation table that goes into the proxy statement.  Companies with lots of zeros for diversity will get increased attention.  That in turn will likely put pressure on boards to improve their standing.

Disclosure in this area would be useful and would likely have some impact on board diversity.

Full post as published by The Race to the Bottom on July 30, 2009 (boomark / email).