201-896-4100

SEC Issues Guidance on Disclosure of Self-Identified Director Diversity Characteristics 


March 12, 2019
« Next Previous »

The SEC Recently Issued Guidance on Disclosure of Self-Identified Director Diversity Characteristics…

The Securities and Exchange Commission’s (SEC) Division of Corporation Finance recently published Compliance and Disclosure Interpretations (C&DIs) regarding the disclosure of self-identified specific diversity characteristics of board members and board nominees.  With the approaching proxy season, companies should consider the SEC’s latest guidance when drafting their disclosures of the qualifications of board nominees and selection of board members.

Regulation S-K Disclosures

Items 401 and 407 of Regulation S-K require companies to describe (1) the qualifications and skills of individual directors and nominees, and (2) whether diversity is a factor in the selection of board candidates.

  • Item 401(e) requires that companies disclose the “specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director.” Notably, companies are permitted to define “diversity” in their own terms.
  • Item 407(c)(2)(vi) requires disclosure of “whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented.”

SEC’s Compliance and Disclosure Interpretations

The SEC’s latest Regulation S-K guidance, C&DIs 116.11 and 133.13, address circumstances where a director or board nominee self-identifies specific diversity characteristics, such as race, gender, ethnicity, religion, nationality, disability, sexual orientation or cultural background. The specific issue for filers is: “What disclosure of self-identified diversity characteristics is required under Item 401 and, with respect to nominees, under Item 407?”

The full response from the Division of Corporation Finance, which is identical for both C&DI 116.11 and C&DI 133.13, is:

Item 401(e) requires a brief discussion of the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Item 407(c)(2)(vi) requires a description of how a board implements any policies it follows with regard to the consideration of diversity in identifying director nominees. To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered the self-identified diversity characteristics referred to above (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company’s disclosure of those characteristics, we would expect that the company’s discussion required by Item 401 would include, but not necessarily be limited to, identifying those characteristics and how they were considered. Similarly, in these circumstances, we would expect any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.

Key Takeaways

  1. Diversity as a company’s policy, is a required topic of consideration and disclosure when it involves selecting nominees as board members. As highlighted by the SEC guidance, when board members or nominees provide self-identified diversity characteristics, companies must identify the characteristics and discuss how they were considered in their Regulation S-K disclosures.
  2. Item 407 requires disclosure of how the company’s diversity policies apply to its consideration of self-identified diversity attributes of nominees and the nominee’s other qualifications as set forth in the company’s diversity policy.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Paul Lieberman, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.