The Glass Boardroom: The SEC’s Role in Cracking the Door Open so Women May Enter

In my forthcoming article, The Glass Boardroom: The SEC’s Role in Cracking the Door Open so Women May Enter, I expose the lack of compliance among Fortune 50 companies in adhering to the SEC’s main rule relating to diversity on corporate boards of directors.

The SEC’s revised diversity disclosure rule, which became effective in 2010, requires all public companies to disclose: 1) whether diversity is a factor in considering candidates for nomination to the board of directors, 2) how diversity is considered in that process, and 3) how the company assesses the effectiveness of its policy for considering diversity. Because it aims not to “steer behavior,” but to provide investors with information that will allow them to make “more informed voting and investment decisions,” the SEC left the definition of diversity open to individual interpretation by each company.

My article highlights a number of trends and statistics taken from the 2012 proxy statements of the Fortune 50. After examining these proxies, I found that just a quarter of companies were in full compliance with the SEC’s current regulation. Over 60 percent of companies failed to comply with the rule, meeting just one or two of the three distinct requirements set out for companies that consider diversity in selecting directors. Specifically, 14.6 percent of proxies contained a single statement about whether diversity was considered in the board nominating process and nearly half mentioned whether and how diversity was considered, but all omitted how the effectiveness of this consideration is measured. It follows that the brief disclosures of those Fortune 50 companies that admitted to considering diversity in their nominating processes were largely superficial and failed to adequately inform investors as the SEC envisioned in revising its rule.

The above figures do not include the nearly 10 percent of companies that made no mention of diversity in their proxies, despite the rule’s requirement that all companies must disclose whether diversity is a factor in considering candidates for the board, regardless of whether the companies actually consider diversity.

Nearly a third of Fortune 50 companies denied the existence of any “formal diversity policy” in a possible attempt to bypass the diversity disclosure process under the SEC’s rule. These companies fail to realize that the current rule makes no distinction between “formal” and “informal” diversity policies, but rather, requires disclosure under any type of policy, no matter how “informal” it may be.

In addition to examining the diversity statements contained in the Fortune 50’s 2012 proxies, I calculated the number of women holding board seats at these companies. What I found was that women made up just 20.6 percent of total Fortune 50 2012 board seats, amounting to an average of approximately two women directors per board. When the larger pool of Fortune 500 companies was considered, the number was even lower—just 16.6 percent of board seats being held by women. In tying these figures back to the lack of compliance with the SEC’s diversity disclosure rule, I found that the percentage of women holding board seats among the Fortune 500 was up less than two percentage points from 2008 and 2009, the years immediately preceding the implementation of the SEC’s revised rule.

The SEC’s revised rule has engendered little change in board composition. However, in my article, I conclude that it is not the rule itself that is problematic, but rather, the current lack of corporate compliance that is hindering efforts to increase the number of women on corporate boards.

In my article, I also examine the dramatic efforts taken by other countries to increase female representation on corporate boards. Norway pioneered the quota approach abroad, requiring that boards be composed of 40 percent women by 2008. Other countries, including Italy, Spain, France, the Netherlands, and Belgium followed soon after with similar quota laws. While I argue against the imposition of quotas in the United States, I assert that the SEC must take a more hands-on approach in ensuring compliance with its rule in its current form. The requisite level of SEC involvement must come in the form of a detailed Staff Report distributed to all public companies—one that singles out inadequate corporate diversity disclosures, commends and outlines comprehensive disclosures, elaborates what is meant by “diversity,” and provides incentives for change. I believe that such an approach will not only encourage the creation of more robust and representative corporate governing bodies, but also keep shareholders better informed.

My full article will appear in the Winter 2013 issue of the Columbia Business Law Review and will be found here.