Board Diversity: SEC Clarifies Reg S-K Disclosures

The staff of the US Securities and Exchange Commission (SEC) has issued two new Compliance & Disclosure Interpretations (116.11 & 133.13) focussing on how companies should consider board diversity in their Regulation S-K disclosures. The interpretations clarify when “self-identified diversity attributes” of directors and director nominees should be disclosed in public filings

Key Takeaways

Staff have stated that they expect companies to identify diversity characteristics and how they were considered in the nomination process. Diversity characteristics “such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background” should be disclosed, together with “any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.” 

• The Guidance applies to proxy statements or other SEC filings in respect of diversity characteristics of board members or nominees.
• Disclosure is limited to diversity characteristics that the individual self-identifies by and that are considered by the board or nomination committee.
• Disclosure only applies if the nominee has consented to the disclosure of those characteristics.

The new guidance comes not long after the introduction of a new bill in both house of US Congress: Improving Corporate Governance Through Diversity Act of 2019  (H.R. 1018; S. 360). If successful the bill would require public companies to disclose the gender, race, ethnicity and veteran status of their directors, director nominees and senior executive officers on an annual basis. At the state level, the governor of California signed legislation into law in 2018 that requires public companies headquartered in California to have at least one female director by December 2019. By the end of July 2021, a minimum of two women must sit on boards with five members, and there must be at least three women on boards with six or more members. Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.