One area of governance reform not touched upon enough by Congress in Dodd-Frank or Sarbanes-Oxley is board diversity. It’s an important area to be concerned about – and not just for political correctness reasons. If all of the members of the board have similar backgrounds and experiences, the company’s management (and thus shareholders too) is not getting the benefits that come with having a truly diversified board (see the results in the studies mentioned in this memo).
There have been movements afoot overseas to “fix” undiversified boards when it comes to gender, including Norway (which has a mandatory quota!), Spain and Australia (yet there are still issues globally, as this blog notes). This recent UK report noted it would take 70 years to achieve gender-balanced boardrooms at the current rate of change. This report makes a set of recommendations to effectuate greater changes sooner. However, I’m not aware of much movement in the area of race-balanced boardrooms – and the debate over whether sexual orientation should be considered in a board matrix hasn’t even really begun.
As this speech by SEC Aguilar indicates (Aguilar has delivered numerous speeches on diversity recently), there can be improvement in the disclosures provided by some companies regarding this topic, as newly required under changes to Item 407 of Regulation S-K in late ’09. Of course, better disclosure doesn’t necessarily mean change in the boardroom.
One development that may help speed change here in the US is the idea of creating databases of diversified candidates for boards. I would hope that the director recruiting firms in this country already do something like this – but the idea of government giving a push might not be a bad one. Keith Bishop recently blogged about the possibility of California getting back into this business by resurrecting a director registry that it used to maintain. And DirectWomen is a great place to look for qualified women to serve on boards. We do have resources about this topic generally in our “Board Diversity” Practice Area.
I love Nell Minow’s recent article entitled “Corporate Boards — Still Pale, Male, and Stale.” I imagine that the opening quote in the article – from a CEO, “Oh, we already have a woman” – that was uttered many years ago could just as easily be said today by someone less informed…
Study: No Women on Over 40% of the World’s Largest Boards
Following up on the theme above, consider this new report from GovernanceMetrics International that shows that more than 40% of the world’s largest publicly listed companies have not appointed even one woman to their boards. Did they just blow your mind? It blew mine.
3rd Annual Public Company M&A Nuggets
We have posted the transcript from our recent DealLawyers.com webcast: “3rd Annual Public Company M&A Nuggets.”
– Broc Romanek