In a June 27 speech to the International Corporate Governance Network, SEC Chair Mary Jo White engaged in a bit of full disclosure herself:
“I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.”
As noted in her remarks, the SEC adopted the current disclosure requirements on board diversity in 2009. However, the requirements were added to other board-related disclosure requirements at the last minute, when it was reported that Commissioner Aguilar refused to support the other requirements unless diversity disclosure was also mandated. As a result, the diversity requirements were never subjected to public comment, did not define “diversity,” and seemed to require disclosure only if the company had a diversity “policy”. When companies failed to provide the disclosure because they had no policy, the SEC clarified that if diversity was a factor in director selection then, in fact, the company would be deemed to have a policy, thus requiring disclosure.
If this sounds unclear, it was – and is. And, also as noted in Chair White’s remarks, most companies have responded to the lack of clarity by making what I (and not Chair White) will call lame disclosures. So, proving that nature isn’t the only thing that abhors a vacuum, it appears that the SEC will be acting to require more robust disclosure. It’s anybody’s guess whether more forthright disclosures would have obviated the need for more disclosure rules, but it’s fair to say that, for the most part, companies haven’t done much in board diversity – both substantively and in their disclosures.
One hopeful sign in Chair White’s remarks is that the new rules apparently will focus on self-reported diversity. This is actually a big deal. Directors who are female or people of color do not have to “self-identify” (at least if the company’s proxy statement has photos), but if a board member regards herself as being “just” American” rather than, say, Mexican-American, it’s difficult if not impossible for her company to tout her racial background. I’ve run into this issue in the past, and I think it’s entirely justifiable for directors to refuse to self-identify as a member of a minority group. Let’s hope the SEC makes its rule user-friendly all around as well as in this area.
Chair White’s position on sustainability disclosure was more restrained. She confirmed that sustainability matters should be disclosed when material (a position generally supported by the issuer community), but acknowledged that when such matters are material is up for grabs. As a result, she indicated that the SEC is monitoring disclosures but that nothing more is likely to come down the rulemaking pike for a while. In fact, her closing comment on the topic was to lob the ball back in the investor community’s court:
“And so I urge investors…to continue to use your stewardship and influence to bring about the strategic, supply chain and business model changes you think need to be made by companies to address the underlying risks and priorities. Encourage and prod companies to acknowledge sustainability objectives that are in line with what makes the most sense for their businesses, demand that they describe what they are doing to achieve those objectives and how they are doing against your expectations. We at the SEC will continue to closely monitor developments and to engage with investors and others as we review and enhance our current rules to fulfill our obligation to investors to provide them with the information they need to make investment and voting decisions in today’s world.”
In other words, companies should expect continued shareholder pressure on sustainability, both in terms of actions and (disclosure) words.