Adding diversity to your team can add valuable insights. The Securities and Exchange Commission (SEC) will be expanding their disclosure requirements on boardroom diversity for public companies, but private companies can also benefit from the right insights from a board and management team with differing backgrounds and functional expertise.
Benefits to businesses
Getting input on major decisions from people from a wide variety of backgrounds and experience levels helps enhance corporate value. During a recent speech, SEC Chief Accountant Wesley Bricker said, “Diversity of thoughts diminishes the extent of group thinking, and diversity of relevant skills (for example, industry or financial reporting expertise) enhances the audit committee’s ability to monitor financial reporting.”
Academic research has found that boards with diverse members have better financial reporting quality and are more likely to hold management accountable after poor financial performance. This concept also extends to private companies; management teams with people from diverse backgrounds and/or functional areas expand the business’s abilities to respond to growth opportunities and potential threats.
Financial statement disclosures
In 2009, the SEC issued Release No. 33-9089, Proxy Disclosure Enhancements, to set a number of disclosure rules, including the extent to which the company considers diversity in selecting board candidates. But several institutional investors — including the California Public Employees’ Retirement System (CalPERS) and the New York State Common Retirement Fund — say the requirements don’t provide enough information and haven’t sufficiently increased diversity on corporate boards.
Some investor groups want the SEC to require all public companies to disclose more detailed information about boardroom diversity. In 2016, the SEC’s Advisory Committee on Small and Emerging Companies made a set of recommendations for improving the disclosure rules about the diversity of boards of directors. And, in May, Representatives Carolyn B. Maloney and Donald S. Beyer, Jr., sent a letter to SEC Chair Jay Clayton, urging him to take action on women’s underrepresentation on America’s corporate boards.
Be a leader, not a follower
In the meantime, some companies have voluntarily expanded their disclosures to meet these recommendations. These businesses openly disclose in their proxy statements the extent to which their boards are diverse in race, gender and ethnicity.
If you have questions, want help assessing your level of boardroom or management team diversity or need assistance creating disclosures that show your commitment to enhancing shareholder value, JLK Rosenberger can help. For more information, call us at 949-860-9902 or click here to contact us.