As the 2019 Proxy Season Approaches, Corp Fin Issues C&DI Addressing Board Diversity Disclosures

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On February 6, 2019, the Securities and Exchange Commission's Division of Corporation Finance ("Corp Fin") posted two identical Compliance & Disclosure Interpretations ("C&DIs") relating to diversity disclosure under Items 401 and 407 of Regulation S-K ("Reg S-K"). Companies should be mindful of this new interpretation when drafting their proxy disclosures for the upcoming season relating to director qualifications and processes for selecting director nominees.

Item 401(e) requires a 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." 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."

New Questions 116.11 and 133.131 ask what disclosure of diversity characteristics is required under Items 401 and 407 when directors or director nominees voluntarily provide 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 C&DI explains that, to the extent an individual’s 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 company’s Item 401 discussion to include, among other things, "[identification of] those characteristics and how they were considered." Similarly, 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."

As companies prepare their 2019 proxy statement disclosures, self-identified diversity characteristics of directors and director nominees should be carefully considered. Companies should also confirm with each individual that any contemplated disclosure is accurate and appropriate.


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