SEC Chair Wants To See Fewer Pale And Male Boardrooms

SEC Chair Mary Jo White CREDIT: AP PHOTO/CAROLYN KASTER
SEC Chair Mary Jo White CREDIT: AP PHOTO/CAROLYN KASTER

Women hold less than 20 percent of seats on the boards of the country’s largest companies, while women of color hold just about 3 percent. In fact, 14 of the 500 largest companies have no women on their boards at all. And little progress is being made year to year to improve the numbers.

Corporate boardrooms aren’t supposed to stay so pale and male. The country has one main tool meant to shine a light on the lack of diversity and prompt companies to change: a rule at the Securities and Exchange Commission (SEC) that requires them to disclose information about how they consider diversity. The rule is so toothless, though, that it has little impact.

This could all change if SEC Chair Mary Jo White gets her way.

On Monday, White gave a speech in which she outlined some of the changes she’d like to see happen at her agency. In January, she announced that she had directed staff to review the rule with an eye toward a revision. “I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures,” she said Monday. “My view is that the SEC has a responsibility to ensure that our disclosure rules are serving their intended purpose of meaningfully informing investors. This rule does not and it should be changed.”

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As written, the SEC’s rule doesn’t define diversity. So many companies have come up with definitions for themselves that don’t take it to mean gender and race, according to research by Professor Aaron A. Dhir of Osgoode Hall Law School. Instead, about half of companies in the Standard & Poor’s 100 index interpreted it in other ways, most commonly diversity of experience, between when it went into effect in 2010 and 2013.

Meanwhile, companies can comply with the rule in a way that discloses very little information. For example, Berkshire Hathaway has met the requirement by saying it does not have a diversity policy for board members. Only 8 percent of companies in the S&P; 100 said they had a formal policy.

The SEC has a responsibility to ensure that our disclosure rules are serving their intended purpose.

White recognized these very problems in her speech on Monday. “The rule does not define diversity and the adopting release made clear that there was no single way required to define the term,” she said. “Very few companies have disclosed a formal diversity policy and, as a result, there is very little disclosure on how companies are assessing the effectiveness of their policies.” She noted that disclosures have been “vague” and “changed little since the rule was adopted.”

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That, she noted, has left investors dissatisfied, particularly those who may have read the reams of research that shows more diverse boards bring better returns. But some companies do release more detailed information. “This more specific information is clearly more useful to investors,” White said. “And based on the voluntary disclosures we have seen, it appears that it would not be difficult for companies to prepare disclosures that would include the more specific categories of diversity investors are seeking.”

She noted that while board diversity is “very important,” the SEC can’t mandate it. But it can use its disclosure rules to prompt it along.

She didn’t specify what the changes will look like. But Dhir thinks the speech is a good sign. “It is heartening that Chair White has recognized the need to reform the Securities and Exchange Commission’s board diversity disclosure rule,” he told ThinkProgress in an email. He has two suggestions for how to make the rule have a greater impact: “First, specifically defining diversity to include socio-demographic factors,” such as race and gender, he said. “And second, moving to a ‘comply-or-explain’ structure, as a number of other countries have done.” That structure would require companies to either describe the standard or best practices they use when it comes to diversity on their boards or give an explanation as to why they don’t.

Until then, the Government Accountability Office has estimated that it will take another 40 years for women to see equality in the boardroom.