How are Companies Responding to the New SEC Board Diversity Disclosure Requirements?
Updated through 3/23/10: Calvert examines recent proxy filings to determine how companies are addressing enhanced board diversity reporting requirements.
3/23/2010
The Securities and Exchange Commission (SEC) recently approved board diversity disclosure requirements in proxy statements. Effective on February 28, companies were required to disclose:
- “Whether, and if so how, a nominating committee considers diversity in identifying nominees for director”;
- “If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, disclosure would be required of how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy.1”
Given Calvert’s long history in promoting the addition of women and minorities to corporate boards, we are excited to review the range of approaches companies are taking to this new disclosure requirement. We believe this should provide boards with a formal opportunity to consider the benefits of diversity and explain to investors how the board implements its diversity policy.
We have a provided a scorecard which outlines the approach taken by Russell 1000 companies that have filed proxies since March 1, 2010. The scorecard compares board diversity 2009 and 2010 disclosures and analyzes any progress made.
What makes us optimistic: So far, a few companies have given us reason to be excited by stepping up and disclosing information to which investors previously never had access. This includes companies such as Coca-Cola and Alcoa, which provide a breakdown of the gender and racial make-up of their directors and specifically state the value diversity brings to their board.
What leaves us unsatisfied: While we appreciate seeing movement on diversity disclosure, no companies (so far) have responded to the requirements regarding implementation and measuring effectiveness. While we realize having a diversity policyis not part of these new disclosure requirements, we believe that some companies are bypassing the spirit of the disclosure requirement by stating that while they consider diversity, they do not have a formal policy. As investors who are seeking to better understand a board’s implementation of diversity considerations, this is disappointing. We hope to work with other investors in an effort to better understand how companies examine and implement diversity on the board level.
What makes us concerned: Shortly after the SEC mandated this disclosure, there were many concerns that companies would provide no insights into their considerations of diversity. A number of investors said, “Of course companies will say they consider diversity. What company would say no to that?” We are surprised to that there indeed are some companies that still do not fully understand the value diversity brings to a boardroom. We believe board diversity helps ensure that different perspectives are brought to bear on issues and that board diversity enhances the likelihood that solutions will be comprehensive and nuanced and will not just focus on one set of opinions, but rather be inclusive of a broad range of viewpoints.
We intend to continue reviewing proxy statements and update our analysis and approach in an effort to encourage greater transparency by providing companies and other investors with examples of best practices. We will also highlight our concerns where necessary.
Aditi Vora Mohapatra, Sustainability Analyst As a Corporate Governance and Business Ethics Analyst, Ms. Mohapatra focuses on the semiconductor, telecommunications and computers industries. She also works closely on corporate diversity issues including the Calvert Women's Principles® and diversity-related advocacy efforts. Prior to joining Calvert in 2007, her professional experience included international aid work in the non-profit sector. She earned an MBA in Finance from George Washington University and a BS in International Economics from the University of Florida.
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