SEC Commissioner Luis Aguilar, in a series of recent speeches and statements, has been speaking out on the need for corporate boardrooms, regulators, and the SEC itself, to increase diversity among its ranks, including senior ranks. He also included a reminder about an SEC rule promulgated in 2009 requiring public companies to disclose more about their policies related to nominating a diverse board, and the companies' evaluation of the effectiveness of those policies.
In remarks before the 2011 Hispanic Association of Corporate Responsiblity-Corporate Directors Summit on April 30, Aguilar focused on:
the need for corporate America and its regulators to embrace this nation’s growing diversity. It is past time to see the diversity of our nation reflected in corporate boardrooms, in the financial industry, and in the government.
The State of Diversity Today
Among the points noted in Commissioner Aguilar's speech, supplemented by his May 2 statement - strongly titled "The Abysmal Lack of Diversity in Corporate Boardrooms is Growing Worse" - were:
- Boardrooms: Citing statistics from a 2008 report published by the Alliance for Board Diversity, Aguilar stated, "There is a persistent lack of diversity in corporate boardrooms across this country — and women and minorities remain woefully underrepresented.' Citing from the ABD's May 2, 2011 report, he noted that diversity among women and minorities in corporate boardrooms decreased from 2004-2010.
- Senior management: "Unfortunately, corporate boardrooms are not the only place where diversity is lacking. The lack of diversity in the securities industry is particularly acute. The most recent Government Accountability Office report on employment in the financial services industry found that the percentages of African Americans and Hispanics in senior-level management positions were just 2.8 % and 3%, respectively. Clearly, the industry must do substantially better."
- The SEC: "I would be hiding the ball if I didn’t also point out the lack of diversity at the SEC. While 32 percent of the SEC work force comprised people of color in 2010, only 19% of our attorneys were people of color. The most telling numbers are of our senior officers. As of fiscal year 2010, the SEC’s senior officers were approximately 90% white, 3% African-American, 2% Hispanic and 2% Asian. The gender breakdown among these senior officers is 69% male and 31% female."... He added: "Moreover, I find it puzzling that the SEC, an agency known for championing full and fair disclosure, does not publicly release its EEOC data on its workplace diversity. All covered federal agencies, of which the SEC is one, are required to file an annual report with the Equal Employment Opportunity Commission, entitled the 'Federal Agency Annual EEO Program Status Report.' Many federal agencies, including ones with much larger workforces—most notably, the United States Army, the Department of Veterans Affairs, and the Department of the Interior—publically disclose these reports which include data regarding the gender, racial, and ethnic makeup of their respective workforces. I think it is past time that the SEC should do the same." He added, "It is absolutely clear that the SEC is not doing enough to recruit, retain, and advance minority candidates at the professional and senior leadership levels," and stated, "I am committed to improving the diversity of the SEC’s workforce and I am continuing to work closely with our Office of Human Resources to do just that."
- Financial Regulators: "Section 342 of the Dodd-Frank Act requires that the SEC undertake significant efforts to recruit and promote employees from all backgrounds. In particular, Section 342 requires that the SEC, and all other financial regulators, establish a new Office of Minority and Women Inclusion. Many of our financial regulator counterparts, like the FDIC, the Federal Reserve, and the Department of Treasury have already established this program and have the new office, director and staff in place. I look forward to the SEC establishing its office and quickly catching up to our counterparts."
SEC Notes Weaknesses In Compliance With Disclosure Requirements
Regarding SEC disclosure requirements for identifying diverse board nominees, Aguilar noted that:
[I]n late 2009, the Commission adopted a rule to assess a company's commitment to developing and maintaining a diverse board. In summary, public companies are now required to disclose whether diversity is a factor in considering candidates for nomination to the board of directors, and how the company assesses how effective the policy has been.
...Just recently the SEC staff reviewed the disclosures made by several hundred companies resulting from the new diversity disclosure requirement. From this review, the staff issued a number of comment letters. The results of this review seem to indicate that there are two primary areas of compliance weakness.
First, some companies are failing to disclose important information regarding their board of director diversity policies. These companies are drawing a false distinction that disclosure is only required if the company has a “formal” policy, rather than an “informal policy.” These companies and their advisors need to go back and review the rule. The rule states companies must disclose “whether, and if so how, a nominating committee considers diversity in identifying nominees for director.” But it does not end there. It also states that if a company has a “policy with regard to the consideration of diversity in identifying director nominees,” the company must disclose “how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy.” This disclosure does not depend on whether the policy is defined as “formal” or “informal.” Moreover, these companies seem to have forgotten why investors asked for this disclosure, and why the SEC promulgated this rule — it is because investors care about board diversity issues and it is an important factor when they make investment and voting decisions. Investors do not care if the diversity policy is formal or informal; they care about the substance of the policy and whether it is effective.
Second, for those companies who do disclose they have a policy, we are seeing incomplete disclosure regarding the evaluation of the effectiveness of the policy. Thus, companies are complying with the first prong of the rule but not the second—which requires the company to disclose how it evaluates the diversity policy’s effectiveness. It is important that all companies — not just those with good stories to tell — comply with both prongs of the rule. The rule requires companies to be transparent about how they treat diversity and full compliance with the rule is the only way to achieve this goal.
Commissioner Aguilar added:
I know these companies can do a better job. I have asked the SEC staff to continue to monitor this situation to make sure companies are transparent about their diversity policies.
Commissioner Aguilar identified a number of organizations that compile lists of highly qualified women and minority candidates for board positions. Refer to the text of his remarks and the footnotes thereto.
FEI Diversity and Inclusion Initiatives
In addition to the resources listed in Commissioner Aguilar's speech, another source of talent can be found at Financial Executives International, an association of over 15,000 senior financial executives. FEI has a long-standing Director's Registry and Resume Bank of FEI members seeking positions as directors or in senior management. These resources are available in FEI's Career Center.
Additionally, FEI launched a Diversity and Inclusion initiative, whose Mission Statement states:
Our mission is to increase diversity of FEI’s membership to reflect the diversity of our profession and builds a culture of inclusion. This culture is one that embraces and leverages the differences and similarities of each FEI member, with the goal of enhancing the networking, advocacy and leadership that defines FEI. As a global leader, a diverse perspective is essential to our continued success and one of our greatest values is having an inclusive environment that respects each individual and enables our members to reach their full potential.
Other points noted on FEI's Diversity & Inclusion webpage:
Why is increasing diversity so important for FEI?
- Diversity is the face of the business world today and will be even more so in the future
- Diversity is important to our members’ employers and they have been moving forward in implementing initiatives and strategies of their own
- Increasing diversity is simply, good business
- Increasing diversity of thought, experience, backgrounds, and points of view will lead to stronger [FEI] Chapters and expand the pool of potential Chapter leaders and committee members
Taylor Hawes, CFO Intellectual Property & Licensing at Microsoft, and Chairman of FEI's Diversity Committee, notes:
“ Diversity is important to FEI and to good business; especially when diverse populations account for over 44% of the global GDP and within the U.S. over $9 trillion dollars. Financial Executives International has a national diversity task force focused on increasing the diversity and inclusion of our membership. Activities ranging from combined networking - such as our programs held in conjunction with ALPFA (Association of Latino Professionals in Finance and Accounting), NABA (National Association of Black Accountants, Inc.) & ASCEND (Pan Asian Leaders in Finance and Accounting) - and professional development and networking events brings recognition and focus to the importance of creating an environment that celebrates our similarities as well as our differences."
Read more about these activities on FEI's Diversity Initiatives webpage. FEI members, prospective members and others interested in learning more about FEI's diversity and inclusion initiatives, contact Jackie Major, Senior Associate, Chapter Support at email@example.com.
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