SEC Committee Fails to Reach Consensus on Board Diversity

January 17, 2017

The Securities and Exchange Commission’s (“SEC”) Advisory Committee on Small and Emerging Companies recently failed to agree on proposed changes to improve disclosures regarding board diversity. During its December 7 conference call, panel members held lengthy discussions about the diversity disclosure recommendations but could not reach a consensus to vote.

Per Release No. 33-9089, Proxy Disclosure Enhancements, public companies must disclose in proxy statements if diversity plays a role in their director nomination process and how such considerations are made. The release, however, does not provide a clear definition of “diversity,” but gives companies the freedom to determine how the term is defined. The draft recommendations proposed would require issuers to disclose the extent of their boards’ diversity such as each member’s race, gender and ethnicity.

Committee members had questions about the definition of “ethnicity,” as well as whether the disclosures should be voluntary, and how to prevent situations where only a few board members are recognized. Co-chair Stephen Graham noted that the panel should avoid forcing self-identification on board members. Another concern was the wording of the recommendations; some panelists believed the language was too specific for directors to make disclosures.

The recommendations will be redrafted and redistributed among panel members for consideration early this year.