Mehri & Skalet, PLLC
September 12, 2003
VIA HAND DELIVERY AND E-MAIL
Jonathan G. Katz
Re: File No. S7-14-03
Dear Mr. Katz:
Mehri & Skalet, PLLC, submits these comments to proposed rule S7-14-03 as a law firm long dedicated to advancing equal opportunity and meaningful diversity in Corporate America. For years, we have represented minority employees wronged by their employers on account of race. Indeed, our attorneys have served as Class Counsel in two of the largest race discrimination class actions in history: Roberts v. Texaco Inc., which settled in 1997 for $176 million and Ingram v. The Coca-Cola Company, which settled in 2001 for $192.5 million. Our experience has taught us that transparency in corporate America opens the door to diversity and equal opportunity at all levels from promotions for mid-managerial employees to appointment of a company's board of directors. For these reasons, we commend the Commission on its efforts to instill transparency in the boardrooms of Corporate America. Requiring companies to disclose their nominating procedures and desired attributes for corporate directors will provide shareholders with a window into a process previously shrouded in secrecy.
We believe, however, that any disclosure cannot be complete without specific information on whether a company utilizes diverse candidate slates in the board member nomination and selection processes. Such disclosure would require the company to articulate and document to its stakeholders efforts made to obtain a final slate of board candidates that includes minorities and women. Information provided to shareholders should include the total number of individuals seriously interviewed for open seats on the board of directors, as well as the number of racial and ethnic minorities and women among those seriously interviewed for open seats on the board.
Just as shareholders have a right to know the mechanisms through which their boards of directors are nominated, they have a right to know the extent to which the nominating committee values racial, ethnic and gender diversity when assembling slates of candidates and whether it makes concrete efforts to achieve diversity. Requiring such disclosure makes good business sense, is consonant with the spirit of extant securities regulation, and promotes values important to all those with a stake in effective and responsible corporate governance. This is an issue that has now, and should have always, risen to the level of "material."
A company's proxy statement must disclose all "material facts." Surely, in today's rapidly changing business environment, the degree to which nominating committees utilize diverse candidate slates in selecting new directors is a material fact. Several recent studies have demonstrated that diversity in corporate boardrooms is a key ingredient to successful and profitable corporations. The failure to seek and achieve board diversity may signify a corporate culture that is insular, antiquated and not up to surmounting the challenges faced by the modern corporation operating in a global arena. Stakeholders have the right to know the extent to which companies take concrete procedural steps toward diversity, such as the use of diverse candidate slates.
As minority groups grow in size and spending power, effective corporate governance requires sensitivity and a keen understanding of their needs. Many directors at major corporations acknowledge that maintaining a customer base that includes the one third of the purchasing public who are minorities requires having boards that reflect the underlying consumer population. Further, diverse boards are strategically vital to ensuring success in a global economy. Today's boards do business in a climate where the innovation and new thinking that accompany diversification are critical. Because consideration of diversity in corporate boardrooms is a key determinant of successful governance, shareholders should be apprised of efforts to ensure diversity when reading their proxies. The existence or absence of such efforts is clearly a material fact that must be disclosed.
Further evidence of the materiality of diversity is the degree to which diversity is valued by shareholders. In particular, institutional investors, perhaps the most cautious and circumspect of the investing public, have committed to diversifying the boards of the companies in their portfolios. For example:
Clearly, institutional investors now demand diversity on the nation's boards of directors. Yet, without the disclosures we propose, they lack the data needed to make informed investment decisions.
Requiring proxy disclosure of whether a company employed an inclusive selection process with the use of diverse candidate slates furthers the broader goal of diversifying the American workplace. Many of the nation's leading companies have implemented programs to recruit minorities and women. These companies benefit by gaining a dynamic workforce. Indeed, the Supreme Court, in proclaiming diversity a compelling national interest and upholding the University of Michigan Law School's diversity-conscious admissions policy, noted that diversity is extremely relevant to the business world. It did so after considering the petition, filed by sixty-five of the nation's largest companies, insisting that effective workforces require "exposure to widely diverse people, cultures, ideas and viewpoints." Just as diversity is necessary to create an effective workforce, diversity is necessary to create an effective board of directors. Shareholders have a right to be apprised of the efforts corporations are taking to ensure the diversity and, therefore, the strength, of their boards.
We strongly urge the Commission to amend its proposed rules to require disclosure as to a company's utilization of diverse candidate slates in board member selection.
Cc: Chairman William H. Donaldson