In his 2018 annual letter to America’s CEOs, BlackRock’s Chairman and CEO Larry Fink highlighted the importance of corporate diversity. According to Fink, such diverse boards of directors “are less likely to succumb to groupthink or miss new threats to a company’s business model” and are “better able to identify opportunities that promote long-term growth.”
Fink’s letter is part of BlackRock’s effort to obtain information from companies on their board composition, on their diversity recruitment strategies, and more specifically, on the processes these companies have instituted to mitigate unconscious biases that often work as artificial barriers to board membership.
{mosads}If you read Kristin Tate’s Jan. 6, 2019 op-ed in The Hill, you would have thought Fink’s comments were “proposals from the left” to “force” “set aside positions for women and people of color”.
However, Fink’s comments represent a growing demand among institutional investors – both public and private – to obtain more transparent disclosures of boards’ racial, gender, and ethnic composition because of the well documented value diverse boards yield. For example, in 2018, Boston Consulting Group found after analyzing 1,700 companies that “increasing the diversity of leadership teams leads to more and better innovation and improved financial performance.” In 2018, McKinsey found a similar link between outperformance and diversity.
Regulators have also acknowledged that race, gender and ethnicity often shape an individual’s experience in America and thus, can shape an individual’s worldview and business outlook, building the case for greater inclusion as a business imperative. Indeed, diversification is a core tenant of wise corporate strategy and that tenant should extend to firms’ c-suites and boardrooms alike.
After studying the importance inclusion plays in a company’s performance, the Securities and Exchange Commission (SEC) promulgated a rule in 2009 requiring companies to disclose to their shareholders the extent to which they consider diversity when nominating directors. Furthermore, the SEC’s rule required companies to disclose how effective their diversity policies are.
Only some companies comply with the spirit of the law when reporting the composition of their boards. For example, in its 2018 proxy statement, Verizon – one of the largest employers in my racially and ethnically diverse district – disclosed through a reader friendly chart that its board includes five Hispanics/African-Americans, four women, and twelve individuals with global experience. Although this information informs potential investors and the general public about Verizon’s commitment to diversity in a straightforward manner, other companies have not been as forthcoming to much frustration among investors.
In 2015, nine public fund fiduciaries – representing the retirement savings of hardworking teachers, firefighters, and police officers – petitioned the SEC to improve its diversity disclosure rule by requiring more specific information related to the race, gender, and ethnicity of corporate boards. The fiduciaries also argued that such disclosures be made public in a more reader friendly way, such as by a chart or a matrix in the companies’ annual statements.
Small public firms have also requested improvements to the SEC’s rule. For example, the SEC’s Advisory Committee on Small and Emerging Companies – which includes a number of small firm CEOs – recommended that the SEC enhance its disclosure rule by requiring companies to “include disclosure regarding race, gender, and ethnicity of each [board] member/nominee as self-identified by the individual.”
Considering the groundswell of support for improving the SEC’s diversity disclosures, I plan on introducing a bill that does just that. Rather than demanding quotas on corporate boards as Tate’s op-ed falsely accuses Democrats of advocating for, my bill would empower investors with more clear and comparable information on the composition of the boards of companies they invest in. The bill simply improves an existing private sector tool that encourages inclusion through greater transparency between companies and their investors.
While it is important for Democrats and Republicans to review the SEC’s regulatory framework to identify unnecessary and unduly burdensome disclosures, it should also be imperative for us to work in a bipartisan fashion to encourage more transparent, forthcoming, and consistent disclosures that are material to the financial performance of firms, including their board and management diversity. As Tate’s op-ed implicitly suggests, having benchmark information about employers’ diversity numbers (in fact, she relied on such information as it relates to diversity on Capitol Hill to make her argument) helps to paint a picture about just how far employers can and should go toward diversifying their boards.
My Republican colleagues should not succumb to fear mongering, decades old rhetoric, and baseless mischaracterizations that often consume discussions on diversity and inclusion. Rather, improving the SEC’s diversity disclosures should be viewed as a bipartisan opportunity to seize upon recommendations from Fink and other business leaders that will result in more transparent capital markets and better corporate governance, both of which will ultimately promote economic growth.
Meeks represents the 5th District of New York and is a senior member of the House Committee on Financial Services.