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Column
Diversity and Disclosure: How Far? If the SEC has its way, it may end up discouraging nominees who otherwise might bring fresh, independent perspectives into our corporate boardrooms. By Elizabeth Ghaffari How much disclosure of a candidate’s background actually would inform the board, its committees, and shareholders on how a director will think inside the boardroom? Or does “diversity” disclosure tend toward a witch-hunt for “people who look like me”? Last month the Securities and Exchange Commission (SEC) requested comments on a Proposed Rule 33-9052 Proxy Disclosure and Solicitation Enhancements as part of efforts to improve the content and transparency of information companies should make available to shareholders about director qualifications. The SEC’s proposal to superimpose a “diversity” standard on board director candidates might actually produce the unintended consequences of discouraging new candidates from applying, thereby reducing the number of qualified candidates with diverse perspectives from pursuing public company director roles. Tougher Disclosure for New Candidates The proposed rules would require tougher disclosure before “selecting someone for a board position.” New candidates would be held to the higher standard, paying the penalty for past failures of the marketplace to include more independent-minded directors. By mandating a five to 10-year look-back in director disclosures, the SEC will require traditionally underrepresented groups to leap over a much higher barrier of personal and professional disclosure than has been applied to their predecessor directors. This might discourage nominees who otherwise might bring fresh, independent perspectives into our corporate boardrooms. The diversity burden is reminiscent of the specific certification requirements once imposed on WMDV businesses (women, minority, disabled, veterans, and now, LGBTs). Such “proof that you are diverse” proposals did little to enhance the actual contractor pool of eligible bidders. Professional woman who worked under these historic efforts to “right the wrongs of history” know only too well the failures of diversity quotas. It is education and experience that foster an open mind, not arbitrary rules. Director candidates may not consider themselves “different” except as to the independence of their minds. Thus, the SEC would exclude many capable candidates who choose not to define themselves by a particular ethnicity, gender, or racial categorization. Today’s director candidates have invested significantly in their educations, experience, and professional development to overcome historic biases and prejudices in the marketplace. Now, just as they have reached a pinnacle of success, overcoming past labels of second-class status, the SEC would ask them to restate and reaffirm their historically limiting experiences. Diversity Is an Ill-Defined Concept Diversity is a poorly defined term. How much diversity is enough for firms of different sizes, industry categories, employee classes or types? Would one token representative from every isolated group produce better governance? The job of a corporate board is to select identifiable competencies and expertise that offer the greatest probability of helping the business chart its strategic direction in the best interests of all its shareholders and stakeholder interest. The argument that “diversity” produces specific “value added” in governance is poorly supported by quality research studies. Research about women directors alone is rife with misconceptions as to correlation vs. causation, errors of sample size and stratification, selection of too-short time periods, and data sampling biased by economic booms. Research that suggests that firms experience “greater profitability” due to the presence of a few directors from selected diversity classifications are more ‘urban legend’ than substance. Such studies fail to factor in or out other contributing forces, such as the strong influence of management, leadership, or directors who brought the women on board. Equal Opportunity In her testimony of July 14, 2009, before the Senate confirmation hearings, Judge Sonia Sotomayor said: “I want to state upfront, unequivocally and without doubt: I do not believe that any racial, ethnic or gender group has an advantage in sound judging. I do believe that every person has an equal opportunity to be a good and wise judge, regardless of their background or life experiences." If Judge Sotomayor has the right to not prejudge (based on her background) issues and cases that might come before her in the Supreme Court, why wouldn’t we allow corporate director candidates the same inherent right to not be prejudged (based on their experiences) as to how they will assess the risks, rewards, issues, or strategies that they might face as a member of a board of directors? |
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| Elizabeth
Ghaffari is president and CEO of Technology Place Inc., a technology
consulting firm that she has led for 20 years. In 2004, Ms. Ghaffari
began analyzing the changes arising in the public corporate marketplace
as a result of federal laws mandating greater transparency and
accountability of U.S. stock-based companies. Her Surveys of Women on
Boards of Directors at California-Based Fortune 1000 Firms
in 2004 and 2005 provided the biographical and research foundation for
her just-published book, “Outstanding in Their Field: How Women
Corporate Directors Succeed” (Praeger,
2009). She also has a website, Champion Boards, that is an authoritative resource for innovative and creative analysis of the challenge of women’s advancement to leadership and board service. She has presented her research and survey findings at corporate, academic, and public conferences dealing with women-on-boards issues. Ms. Ghaffari's educational background includes governance, economics, and political science at Stanford University, University of California at Los Angeles (Anderson Graduate School of Business), American University (Washington, D.C.), and Wheaton College. She can be contacted at techplace@earthlink.net. Copyright © 2009 Directors & Boards, P.O. Box 41966 Philadelphia, PA 19101-1966. All rights reserved. Contact the webmaster. < Privacy Notice > |
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