By Bill Flook
A coalition of industry groups that includes the American Bankers Association and U.S. Chamber of Commerce on July 27, 2020, urged the Senate Banking Committee to pass a bill mandating new diversity disclosures for public companies. H.R. 5084, the Improving Corporate Governance through Diversity Act, would also establish a Diversity Advisory Group within the SEC.
The bill, which passed the House in November 2019 on a 281-135 vote, has seen unusual support from the business lobby which prefers the disclosure-based measure to a more prescriptive alternative.
The bill would “establish a model to organically boost diversity on boards through disclosure,” the groups wrote in their letter to the banking panel.
“Our associations and members support efforts to increase gender, racial, and ethnic diversity on corporate boards of directors, as diversity has become increasingly important to institutional investors, pension funds, and other stakeholders,” the groups stated.
Also signing onto the letter were the Financial Services Forum, International Council of Shopping Centers, the National Association of Investment Companies, and the National Black Chamber of Commerce, among others.
The House bill is a mashup of two separate measures sponsored by Reps. Gregory Meeks and Carolyn Maloney, both Democrats from New York. Both measures advanced out of the House Financial Services Committee in July 2019 before being combined into a single piece of legislation in November.
The bill is part of a broader effort by Democratic lawmakers to expand the paltry diversity disclosures required today under SEC rules. Today, under Item 407(c)(2)(vi) of Regulation S-K, a publicly-traded company must disclose whether and how it considers diversity in identifying director nominees. The provision does not provide a definition of diversity. Critics of Item 407(c)(2)(vi) have spent years arguing the provision provides little useful information to investors and believe it should be broadened to include more information about corporate board diversity.
Under the measure, public companies would be required to disclose, in any proxy statement “any information statement relating to the election of directors filed with the Commission,” data based on “voluntary self-identification” on the racial, ethnic, and gender composition of the board of directors, board nominees, and executive officers, among other requirements including their veteran status. The bill also incorporates the core of Maloney’s bill that would set up a Diversity Advisory Group at the SEC to “carry out a study on strategies to increase gender, racial, and ethnic diversity among the members of the board of directors of issuers,” and to issue a report to the commission and Congress within nine months of its creation, according to the bill text.
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