Corp Fin has posted a new Compliance & Disclosure Interpretation under Reg S-K that relates to diversity disclosure. The new interpretation applies to both Item 401— Directors, Executive Officers, Promoters and Control Persons and Item 407—Corporate Governance.

The question asks what type of disclosure is required under Item 401 and Item 407 of Reg S-K where directors or nominees have voluntarily provided “self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background,” consenting to disclosure of these diversity characteristics. Item 401(e) requires the company to “briefly discuss the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director for the registrant at the time that the disclosure is made, in light of the registrant’s business and structure.” According to Corp Fin, to the extent those self-identified diversity characteristics were considered by the board or nominating committee in assessing whether the person’s “experience, qualifications, attributes or skills” were the right fit for the board, Corp Fin expects the discussion required by Item 401 to include, among other things, “identifying those characteristics and how they were considered.”

Item 407(c)(2)(vi) requires disclosure of “whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented.” As above, Corp Fin expects the description of diversity policies under Item 407 to “include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.”


Any company that may be subject to California’s new board diversity law, SB 826, will also want to think about adding into its disclosure a discussion of how the new law may affect the board’s or nominating committee’s consideration of diversity in identifying director nominees or otherwise impact its diversity policy. As you may recall, the legislation requires public companies listed on major U.S. exchanges, including foreign corporations with their principal executive offices located in California, to have at least one woman on their boards by the end of this year. That minimum will increase to two by December 31, 2021, for companies with five directors, and to three women directors for companies with six or more directors. The legislation also authorizes the imposition of fines for violations of the new law in the amounts of $100,000 for the first violation, and $300,000 for each subsequent violation. Failure to timely file board member information with the Secretary of State is also subject to a fine of $100,000. Although the new law is certainly vulnerable to legal challenge, companies should recognize that they may still be subject to pressure from institutional investors, advocacy groups and proxy advisory firms to increase board gender diversity. (See this PubCo post.)