Bloomberg BNA recently reported that the SEC is having a hard time defining diversity for purposes of its forthcoming new rules requiring greater disclosure of corporate efforts to have a diverse board of directors.
The commission must consider the “multiple dimensions of diversity,” said Stanford law professor and former SEC member Joseph Grundfest. Beyond gender, there are numerous ways to classify ethnic diversity, “and the classification challenges in this space are legendary,” he told Bloomberg BNA in an e-mail.
Will the agency, for example, define who is African-American or will it leave it to directors to self-identify, or will the agency require that the corporation classify each director's ethnicity? Grundfest asked. In addition, how will the agency approach disclosures when directors prefer not to be classified or when they can claim multiple heritages?
<sarcasm>Perhaps there are some retired apartheid-era South African racial bureaucrats who could help make those sort of fine distinctions?</sarcasm>
In addition, of course, there is the question of how long the laundry list -- gender, veteran status, religion, ethnicity, sexual orientation, etc... -- ought to be. It turns out that some activists want it limited to race, ethnicity, and gender:
A narrower definition is necessary in order to make a rule more effective, said Laurent-Ottomane, whose organization is committed to the goal of women, including women of color, holding 30 percent of board seats in public companies. “Gender, race and ethnicity is what we are talking about” when it comes to diversity, not what university a candidate went to, she told Bloomberg BNA.
I'm sure that argument will get some push back from the LGBT community, to cite just one potent interest group that will doubtless want its concerns reflected.
In addition, what about intellectual diversity? After all, the point of the exercise presumably is to produce a board with wider expertise and knowledge that is less subject to groupthink. In particular, it was interesting to note that the same Bloomberg BNA Corporate Counsel Weekly issue reported that:
Corporate boards must recruit directors with more international knowledge and experience as companies continue expanding to other countries, a new National Association of Corporate Directors report said.
Interestingly, the NACD report makes clear that achieving that objective will only complicate the definitional problem:
Does a global company need a global board? The answer, based on the feedback and insights of directors interviewed for this report, is an unequivocal “yes.” Yet that answer served to raise further questions: What is a global company, and how should a global board be defined? There is no single definition that sets a truly global company apart from those that are “multi-national”—that is, domestic companies with international operations.
Maybe the best solution would be for the SEC to decide that one size does not fit all and let companies define diversity for themselves to meet the needs of the shareholders -- rather than the wishes of a bunch of activist groups.