Calvert News & Commentary

Calvert Plays Role in Enhancing Board Diversity Disclosure Requirements

Calvert applauds the SEC’s recent approval of disclosure enhancements, specifically new requirements regarding the consideration of diversity in the director selection process

1/25/2010

Aditi Mohapatra,
Sustainability Analyst
Calvert Asset Management
Company, Inc.

Ivy Wafford Duke, Esq.
Deputy General Counsel,
Chief Compliance Officer
Calvert Asset Management
Company, Inc. and
Calvert Distributors, Inc.

On December 16, 2009, the Securities and Exchange Commission (SEC) announced approval of a number of additional proxy disclosure requirements.  These requirements are aimed at improving an investor’s most fundamental right – the proxy vote.  Calvert is pleased to see additional disclosure requirements about compensation policies and practices that present material risks to the company; stock and option awards of executives and directors; director and nominee qualifications and legal proceedings; board leadership structure; the board’s role in risk oversight; and potential conflicts of interest of compensation consultants that advise companies and their boards of directors.  

As Calvert stated in its letter to the SEC, we support the SEC’s proposal that companies disclose to shareholders the general design and philosophy of the company’s compensation policies for employees, as well as the risk assessment or incentive considerations, if any, in structuring compensation policies or in awarding and paying compensation. Keeping shareholders abreast of changes and potential risks as posed by developments in these areas also is good governance.

While Calvert’s September 2009 comment to the SEC provided input on a number of governance-related provisions, including ardent support for enhanced disclosure in the areas of compensation, leadership structure, and reporting of voting results, we are especially excited to see enhancements in the area of boardroom diversity.  Given Calvert’s long history in promoting the addition of women and minorities to corporate boards, we were active in leading investor efforts aimed at providing input on this important provision.  The final rule notes “a significant number of commenters responded that disclosure about board diversity was important information to investors.”  In fact, the SEC specifically references Calvert’s comments a total of six times as a source throughout the final rule.

With the final rule approval, companies will be required to disclose:

• “Whether, and if so how, a nominating committee considers diversity in identifying nominees for director”;
• If diversity is considered, “disclosure would be required of how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of the policy.”

The SEC stopped short by not providing a definition of diversity inclusive of race and gender for companies.  Rather, the SEC states that the definition of diversity is left to the discretion of each company and may be inclusive of race, gender, national origin, and differences in viewpoint, education, professional experience, etc.  As investors, we believe it is critical for companies to embrace the full definition of diversity bearing in mind additional attention needs to be focused specifically on the consideration of race and gender.

As this rule goes into effect on February 28, 2010, we look forward to reviewing company responses.  We hope this mandatory disclosure will provide boards a formal opportunity to review their director selection process and formalize their commitment to a diverse board.  Calvert plans to continue our advocacy in this area using this enhanced disclosure as a new data set in our analysis of boards of directors’ perspectives on this important issue. 

Calvert’s history of board diversity shareholder advocacy

Recognizing the importance of diversity to corporate boards and the role that charter language plays in institutionalizing that commitment, Calvert has been active in promoting the addition of diversity in race and diversity in gender to director selection criteria. With the passage of the Sarbanes-Oxley Act of 2002, Calvert sought to increase the presence of women and minorities on corporate boards. Accordingly, Calvert introduced a model nominating committee charter for corporate boards that would ensure the proper representation of diverse candidates among the pool from which nominees were chosen. 

We continue to push for an institutionalization of this process, so boards move more quickly from what is often seen as the token woman or minority director to more fully inclusive representation. To date, Calvert has filed shareholder resolutions with over 40 companies, the majority of which have been “successfully withdrawn” when companies have either amended their charters to include diversity and/or appoint women or minorities to their boards. Further, as we are confident that diversity in the boardroom is good governance, our proxy voting process includes voting against slates of directors with no gender or racial diversity.