In February 2016, after researching the economic benefits of diverse boards of directors, I wrote an article, How The SEC Should Tackle Board Diversity. Inspired by Helen Reddy’s lyrics “I Am Woman,” I asked myself a somewhat rhetorical question that I sardonically attempted to answer: “So why the slow embrace to female board members? One explanation: Shareholders can’t vote on female board members if there aren’t any female board nominees!” I suggested that the SEC should adopt a model similar to the one required by the Ontario Securities Commission, whereby companies listed on the Toronto Stock Exchange must “talk about diversity or risk being delisted.” I cautiously, but optimistically, predicted that then SEC Chairman Mary Jo White would successfully implement a series of initiatives to require companies “to provide more specific information about the racial/or gender composition of their boards” which, in turn, I theorized would lead to a system better designed to increase women’s leadership roles over time. I implored Chairman White to “Roar, Ms. White, Roar!” That anticipated roar, however, became a whimper, and, what might be the understatement of my lifetime, 2016 was not the year I thought it would be.
Ms. White moved on, as did the SEC’s focus. However, economic, as well as cultural, justifications to boardroom diversity continued to be compelling and to gain traction among a broadening base. Shareholders and shareholder advisory services took note and, in 2018, Institutional Shareholder Services (ISS) released the results of its “2018 Governance Principles.” In connection therewith, ISS proposed, and eventually adopted in 2019, a targeted, common sense policy to recommend against, or withhold votes from the chair of the nominating committee of the board of directors of any public company with no female directors, which included a transitional year. Click here to read more.
Cut to 2020, ISS’s transitional year is over. In early November, ISS released its 2021 benchmark policies, which state that, starting in February 2021, ISS’s only exception to the adverse vote recommendations for companies with no women on their board will be if the board has temporarily lost its gender diversity: that is, if there was at least one woman on the board at the previous annual meeting, and the board commits to restoring its gender diversity by the next annual meeting. Moreover, Glass Lewis announced that beginning in 2021, it will note as a concern boards consisting of fewer than two female directors and, in 2022, Glass Lewis will recommend voting against the nominating chair of a board with fewer than two female directors for boards of six or more directors.
And today, with perhaps greater ferocity and sharper teeth, Nasdaq—perhaps taking a cue from the Ontario Securities Commission—has asked the SEC for permission to adopt a new requirement for the more than 3,000 companies listed on its main U.S. stock exchange to have at least one woman and one “diverse” female and someone who self-identifies as an underrepresented minority or LGBTQ-director and to report data on their board’s diversity—or face consequences.
While there is no time like the present, Nasdaq companies will have sufficient time to comply: they will need to publicly disclose their board diversity data within a year of SEC approval, and will need to have at least one woman or diverse director within two years. Bigger companies will be expected to have one of each type of director within four years.
The cost of non-compliance is not insignificant. Companies that don’t disclose diversity information face potential delisting from Nasdaq, while those that report their data but don’t meet the standards will have to publicly explain why.
What is old is new again. ROAR!