SEC Considers Diversity Push in Board Rooms

It’s not just the Oscars feeling the heat to expand diversity. Publicly-traded companies may face stiffer regulations in that direction, too.

Securities and Exchange Commission Chairman Mary Jo White said on January 26 that one of SEC’s priorities is to mandate companies to disclose the gender and race of candidates to the board of directors of public companies, the Wall Street Journal reported.

“Ms. White said she has instructed staff to review existing company disclosures and give her recommendations on whether the agency should require companies to provide more specific information about the racial or gender composition of their boards,” the WSJ article states.

Rules adopted in 2009 require companies to disclose if diversity is considered for management-backed director candidates. However, because companies are free to define “diversity” in their terms, the Journal said some believe that shareholders are not receiving enough information about the composition of the boards.

A December report by the Government Accountability Office (GAO) found that many companies do not disclose any information.

“The recent analysis of S&P 100 firms’ proxy statements previously mentioned found that eight of the 100 companies reviewed disclosed the existence of a diversity policy in 2010 through 2013. In addition, according to the analysis, a substantial number of companies disclosed the absence of a policy or were silent on the topic,” said the GAO study.

The report said that SEC rules may create disincentive for companies to adopt diversity because the existence of one would require them to disclose how it is implemented.

The study, which focused on gender imbalance on the boards of American public companies, said the portion of women directors on the S&P 1500 companies rose to 16% in 2014 from 8% in 1997. However, at this pace it would take about 40 years before boards would achieve gender equality. Women make up about half the workforce.

Looking at the factors that slow the inclusion of women in America’s boardrooms, the study indicated that diversity is not a priority and that companies typically become complacent when there are one or two women on their boards.

Another factor: Fewer women in the traditional pipeline. “Current and former CEOs composed nearly half of new appointment to the boards of Fortune 500 Companies in 2014, and 4% of CEOs in the S&P 1500 in 2014 were women. One CEO we interviewed said that as long as boards limit their searches to the pool of female executives in the traditional pipeline, they are going to have a hard time finding female candidates,” said the study.

The study also said low turnover in directors helps to keep the board rooms white and male.

The study said several large investors and many stakeholder it interviewed supported improving the requirements in disclosing diversity programs for boards; however, the majority preferred that it be left to companies to voluntarily increase gender diversity.

For now, diversification of the board rooms may not in the vogue for even the most iconic and successful American companies. Apple Inc., for instance, recommended its investors to reject a new diversity proposal, saying it was “unduly burdensome,” as reported by CCN Money. Apple’s board of directors comprises of five white men, one black man, and two women, including one who is Asian-American.