March 3, 2021

Diversity Disclosures Gain Momentum, But Are Plaintiffs’ Firms Lurking?

As we see more Form 10-Ks with new Item 101 human capital resource disclosures, it’s becoming clear that companies are taking this opportunity to tell their “diversity & inclusion” story. This WSJ article from Monday says that about one-third of S&P 500 companies are including at least some information on diversity in their annual report.  A recent Semler Brossy report found some companies are also including HCM disclosure in their proxy statements – which makes sense as companies tell their stories about board oversight of human capital and related initiatives. Semler Brossy’s report says that of the proxy statement HCM disclosures reviewed, diversity & inclusion was the most frequent topic covered.

Companies want to do the right thing and tell all they’re doing on the D&I front, and stakeholders want to see this. At the same time, disclosures need to be accurate. They’ll not only be scrutinized by investors and other stakeholders, but also could attract unwanted attention from plaintiffs’ attorneys – as explained in this recent Keith Bishop blog.

Over the last year, we’ve blogged about several board diversity lawsuits that have cropped up. These lawsuits seem to have quieted down, perhaps as a result of California’s law mandating certain board diversity requirements for companies based in the state and Nasdaq’s proposed listing standard relating to board diversity disclosures. But, this D&O Diary blog provides a discussion of a more recent board diversity lawsuit – this one involving Micron Technology.  We don’t know whether these lawsuits will continue or whether they’ll be successful, but they certainly are an unwelcome development for the companies involved.

As noted in the D&O Diary blog, the most recent lawsuit differs from prior board diversity lawsuits in that it involves a company based in Idaho – not California – and it was brought by a law firm not involved with the prior lawsuits.  As much as companies carefully consider disclosures during what is usually an iterative drafting process, this most recent lawsuit serves as another reminder to consider disclosures relating to diversity and inclusion from all angles, including from the potential perspective of plaintiff firms.

Legislative Push for Board & Executive Diversity Disclosures

Last week, a bill that would require public companies to disclose the gender, race, ethnicity and veteran status of directors, board nominees and senior executive officers was reintroduced in the House and Senate. The bill, called “Improving Corporate Governance Through Diversity Act of 2021” was simultaneously introduced by Congressman Gregory Meeks in the House and Senator Bob Menendez in the Senate.

First introduced in 2017, the bill passed the House in 2019 but then stalled in the Senate. It’s too early to gauge whether the bill will pass but with Democrats in control of both chambers, there’s a chance it could – although it’d likely be a challenge – see John’s blog from last week about Senators urging the SEC to reject Nasdaq’s board diversity listing standard proposal. Various organizations support the proposed legislation, including the US Chamber of Commerce. In addition to requiring board and executive diversity disclosures, this press release describes other provisions:

– Empowers SEC’s Office of Minority and Women Inclusion (OMWI) to publish triennially best practices, in consultation with an advisory council of investors and issuers, for compliance with these enhanced disclosure rules.

– Mandates OMWI to create an advisory council consistent with the Federal Advisory Committee Act requiring formal reporting, public openness and accessibility, and various oversight procedures.

– Allows OMWI to solicit public comment on its best practices publication consistent with the formal rulemaking process under the Administrative Procedures Act.

Board Diversity Matters: There’s More!

With board diversity, there’s a lot more going on besides the introduction of federal legislation and concern about potential plaintiff firms, it’s almost a bit of an extravaganza.  Today, I blogged on our “Proxy Season Blog” about the NY State Comptroller’s recent press release outlining its proxy voting guidelines addressing board diversity matters – the Comptroller has expanded its voting position at S&P 500 companies and in certain cases, anticipates increased votes “against” directors.

Also, in response to comments and criticism launched by members of the Senate Banking Committee that John blogged about last week, Nasdaq amended its proposed listing standard relating to board diversity disclosures. This Bryan Cave blog summarizes the changes – and there are several.  First, one change relates to companies that have five or fewer directors – these companies would only need to include one diverse director rather than two.  In another change, Nasdaq has proposed a one-year grace period for companies with a vacancy on the board that would put the company under Nasdaq’s recommended diversity objective.  At this point, the SEC still has to approve Nasdaq’s proposal so stay tuned.

Also, Reuters reported that during a virtual forum last week Acting SEC Chair Allison Herren Lee said the SEC should consider revisiting disclosure requirements and strengthening guidance on board diversity in an effort to address a lack of board diversity. This Cooley blog questions whether enhanced diversity disclosure will follow Acting Chair Lee’s recent directive to Corp Fin to enhance its focus on climate-related disclosures. It’s hard to say where all of this will lead but in the near term anyway stakeholder focus on board diversity ranks right up there with focus on climate.

– Lynn Jokela