SEC

Diversity and Meritocracy

A few weeks ago a campaign supporter suggested that our messaging was off. He said we are alienating half of our audience by insisting on boardroom diversity. Instead, he said, board directors should be chosen by meritocracy, based on ability and skill. If we selected our leaders based on meritocracy, he was sure that women would find their place on boards and in executive suites. Problem solved.
 
The word diversity has been bantered around for decades in discussions about corporate leadership. We’re told that diversity is a business imperative, that it’s good for business. In 2009 the SEC required companies to disclose their approach to diversity, without ever defining it. Diversity could mean anything. It was for the company to define, and the term can take on an empty ring.
 
2020 Women on Boards was the first organization to put a stake in the ground and define diversity to mean a minimum of 20% women on public company boards. Other groups added their own definitions and there are now diversity initiatives that call for 25%, 30%, 40% and parity for women on boards, many of these initiatives coming from European countries where strict quotas are enforced by law.
 
Those who talk about meritocracy when it comes to board service are perpetuating the myth that boards are chosen based on a specific set of criteria. It is not like applying to college. Each board has a unique set of challenges that are best addressed by a diverse group that brings a vast range of skills and experiences to the table. Most board members are selected because other board members know them or know of them. There’s nothing meritocratic about it.
 
Speak out against all male boards. Vote your proxies and send a message to companies that gender diversity is a priority!

How to Diversify Without Really Complying

In 2010 the US Securities and Exchange Commission implemented a measure to ensure companies disclose information about how they consider diversity when they pick board members.  The rule did not define diversity as meaning gender or race.   Therefore, as per this NY Times blog post, we now have companies “interpreting diversity as having a varied background or experience.”
 
With so many studies documenting the advantage of a gender diverse board, companies would be far better off undertaking a stretch of their boards, rather than simply extending the definition of diversity.

If Not, Why Not?

Recent reports of failing markets overseas remind us that global economies are joined at the hip. What happens in one part of the world impacts what happens in another. The same is true of the Women on Boards movement. Companies in the United States should see European government diversity quotas as a call to action.  They should pay particular attention to what’s happening in the U.K. where quotas are not being considered, but clear guidelines are being suggested.

On Friday we spoke with Henrietta Royle, of the U.K.’s 30% Club, an organization committed to bringing more women onto U.K. corporate boards. Club members are chairmen who work to fulfill the goal and recruit other chairmen to support the mission. To date, 25 chairmen are members of the 30% Club.

Henrietta said that what’s happening in the U.K. is similar to what’s happening in the U.S. “It’s a question of supply and demand,” she said.  “Plenty of supply, no demand.”

England’s SEC equivalent, the Financial Reporting Council, issues governance codes of conduct for public companies. Like SEC rules, companies are required to report on how they apply the codes, confirm whether they have complied, and if not, explain why not.

The FRC is way ahead of the SEC on board diversity. They are considering amendments to the code that would require companies to publish their policy on gender diversity in the boardroom and report annually. The idea came out of the ‘Women on Boards’ report released by Lord Davies last February. The report, commissioned by the government, recommended that company boards aim for a minimum of 25% female representation by 2015. The FRC is now contemplating reporting options.

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