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Aguilar Calls for Action on Board Diversity

In a recent address before the 2011 Hispanic Association of Corporate Responsibility's Corporate Directors Summit, SEC Commissioner Luis A. Aguilar called on the financial services industry, and company boards in particular, to step up their focus on racial and gender diversity.  Referring to the Alliance for Board Diversity's report, Missing Pieces: Women and Minorities on Fortune 500 Boards — 2010 Alliance for Board Diversity Census, Aguilar noted that the lack of diversity in corporate america is growing worse. The report found that women and minorities lost ground in America's corporate boardroom between 2004 and 2010.  

Given the lack of diversity and the many studies that indicate the real economic benefits of diverse boards, it should be no surprise that many investors - from individual investors to sophisticated institutions - have requested that companies provide information about the diversity of their corporate boards and about their policies related to board diversity. For the most part, these requests have fallen on deaf ears.

With regard to new SEC rules requiring public companies to disclose how they are addressing board diversity, Aquilar noted that filers have fallen short of expectations:

First, some companies are failing to disclose important information regarding their board of director diversity policies.  These companies are drawing a false distinction that disclosure is only required if the company has a "formal" policy, rather than an "informal policy." These companies and their advisors need to go back and review the rule. The rule states companies must disclose "whether, and if so how, a nominating committee considers diversity in identifying nominees for director." But it does not end there. It also states that if a company has a "policy with regard to the consideration of diversity in identifying director nominees," the company must disclose "how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy." This disclosure does not depend on whether the policy is defined as "formal" or "informal." Moreover, these companies seem to have forgotten why investors asked for this disclosure, and why the SEC promulgated this rule - it is because investors care about board diversity issues and it is an important factor when they make investment and voting decisions. Investors do not care if the diversity policy is formal or informal; they care about the substance of the policy and whether it is effective.

Second, for those companies who do disclose they have a policy, we are seeing incomplete disclosure regarding the evaluation of the effectiveness of the policy. Thus, companies are complying with the first prong of the rule but not the second-which requires the company to disclose how it evaluates the diversity policy's effectiveness. It is important that all companies - not just those with good stories to tell - comply with both prongs of the rule. The rule requires companies to be transparent about how they treat diversity and full compliance with the rule is the only way to achieve this goal.

Aguilar did not spare the SEC in his criticisms, however.  He called for the agency to improve its diversity hiring practices, making the agency a model for corporate America.

In addition to diversity, Aquilar also called for action on educating investors, particularly those in historically disadvantaged minority groups.

I want to say a brief word about financial literacy - particularly about the need to expand financial education in the Hispanic, African American and other minority communities. I believe that the lack of financial education has resulted in the small number of investments made by Hispanics and African Americans. A recent poll indicated that only 46% of African Americans and 32% of Hispanics said they had an individual retirement account or any similar retirement plan.8 The same poll indicated that only one in six Hispanics and one in four African Americans reported owing stocks, bonds or mutual funds. That contrasts with 50% of whites reporting they own stocks, bonds or mutual funds and two-thirds reporting they had IRAs, 401(k)s or similar holdings.

Additionally, minority communities still lag behind whites in another staple financial instrument: holding a checking or savings account. Over 21% of black households are "unbanked" meaning that they do not have a checking or savings account. Further, over 19% of Hispanic families and 15% of Native American families are also "unbanked." Compared with the approximately 3% of white households who are "unbanked," this gap reflects a significant problem in basic financial literacy education in our minority communities. We clearly must do a better job to empower all Americans with a comprehensive education in personal finance.

The full text of Aguilar's April 30, 2011 address is available at: