The new guidance applies to annual reports on Form 10-K, proxy statements for the election of directors, and registration statements on Form S-1 and Form 10. The guidance became effective upon issuance. The guidance does not necessarily require all companies to add disclosure about diversity – the disclosure may be required only if the board or nominating committee considered self-identified diversity characteristics in its director selection process.
The new guidance is comprised of two parts. The first part of the guidance addresses the requirement to discuss, for each director, the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director. The new SEC guidance states that this disclosure of a director’s qualifications should include describing the self-identified diversity attributes of an individual and how they were considered, if:
- the board or nominating committee in determining the specific experience, qualifications, attributes or skills of an individual for board membership considered such self-identified diversity characteristics of the director;
- the diversity attributes considered include race, gender, ethnicity, religion, nationality, disability, sexual orientation or cultural background; and
- the individual has consented to the company’s disclosure of those characteristics.
The second part of the guidance addresses the requirement to disclose, if the nominating committee or the board has a policy with regard to the consideration of diversity in identifying director nominees, how this policy is implemented. The new SEC guidance states that, if the board or nominating committee considers the self-identified diversity characteristics of a director nominee and the individual consents to the company’s disclosure of those characteristics, the company’s discussion of the implementation of its diversity policy should include how the company considers the self-identified diversity attributes of nominees and any other qualifications its diversity policy takes into account, such as diverse work experiences, military service or socioeconomic or demographic characteristics.
Companies will need to evaluate this new guidance in connection with the preparation of this year’s annual report as well as the proxy statement for upcoming annual meetings of shareholders. In addition, because the guidance specifically addresses “self-identified” diversity and requires disclosure only if the director consents, companies should review their director/officer questionnaire to consider the addition of one or more questions about diversity attributes and to include a consent by the director to referring to such attributes in the annual report or proxy statement.