SEC Issues Guidance on Board Diversity Disclosure

April 15, 2019

The SEC recently updated its compliance and disclosure interpretations (CDIs) to provide guidance on what disclosure of directors’ self-identified diversity characteristics is required under Item 401 of Regulation S-K and, with respect to director nominees, under Item 407. The guidance addresses situations where “certain board members or nominees have provided for inclusion in the company’s disclosure certain self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background.”

The guidance begins by reiterating the applicable rules. “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.”

The guidance then states that, to the extent a board or nominating committee has considered the self-identified diversity characteristics of an individual who has consented to the company’s disclosure of those characteristics, the SEC expects 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.” Notably, the guidance does not address situations where certain board members or nominees do not wish to disclose their diversity characteristics.

Finally, the SEC expects that “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.”

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