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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Diversity in the Boardroom Yields Dividends


Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

Diversity on Corporate Boards: When Diversity Makes a Difference
Stanford Law School
Palo Alto, California
September 10, 2009

Thank you. The topic of today's forum, "Diversity on Corporate Boards: When Diversity Makes a Difference" is one I care deeply about. As someone who arrived in the United States at the age of six as a refugee from Cuba, I have worked passionately to ensure that opportunities in this country are available to all individuals, regardless of gender, race, ethnicity or country of origin. As is customary, the views I express today are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or members of the staff.

In my remarks today, I will address the importance of diversity in three key institutions of American society: in corporate boardrooms, in the financial services industry and in government agencies.

Diversity in the Boardroom

It’s amazing to me that in 2009, there still remains a need to highlight the importance of diversity in the boardroom. In an increasingly global environment, the ability to draw on a wide range of viewpoints, backgrounds, skills, and experience is critical to a company's success.

People often generalize that diversity can have many meanings. Diversity can mean variety of thought, geography, age, career experience as well as the more traditional categories of gender and ethnicity. While I agree that “board diversity” encompasses many ideas, we must recognize that corporate boardrooms across the country lack diversity in terms of the ethnicity and gender of their members.

Many studies indicate that such diversity in the boardroom results in real value for both companies and shareholders. In fact, the California Public Employees' Retirement System's (CalPERS) recently commissioned a report that found companies that have diverse boards perform better than boards composed of directors with similar profiles in terms of ethnicity, gender, and skills sets.1 The report — Board Diversification Strategy: Realizing Competitive Advantage and Shareowner Value — stated that companies without ethnic minorities and women on their boards eventually may be at a competitive disadvantage and have an under-performing share value. The report also found that a selected group of companies with a high ratio of diverse board seats exceeded the average returns of the Dow Jones and NASDAQ indices over a five-year period.

There are a number of other studies discussing the effects of boardroom diversity on a company’s financial performance. These studies are well summarized in an article by Professor Deborah Rhode and Amanda Packel entitled, “Diversity on Corporate Boards” which is included in your materials. In summary, the results of the studies are mixed — with many studies finding a positive correlation, and others finding either no relationship or a negative relationship. The research in this area appears inconclusive because the results are highly dependent on methodology and the studies vary greatly in many ways.

Nonetheless, the truth remains that there is a persistent lack of diversity in corporate boardrooms across this country — women and minorities remain woefully underrepresented. For example, in 2008, the Alliance for Board Diversity compiled statistics about the composition of the boards of directors of Fortune 100 companies and found the majority of board members, 71.5% were white men, and only 28.5% of the board seats were held by women and minorities.2

Hopefully, forums like this one will help improve the situation. And, there are others also working to make improvements. I recently read with delight that six companies agreed to the California State Teacher’s Retirement System’s (CalSTRS) shareholder proposals to seek greater diversity in their board directors. In fact, five of those companies have already taken the significant step of changing their Nomination Committee charters to facilitate the diversification of their boards.

Given the apparent 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 asked the Commission to provide for disclosures about the diversity of corporate boards and a company's policies related to board diversity.

Recently, in its proposal3 discussing several proxy disclosure enhancements the Commission did ask for input on this very question.

In the Commission’s proposing release, the Commission requested comment on several corporate governance-related proposals to disclose key information on a number of important topics. Many of the amendments proposed are designed to enhance disclosure about the relationship of a company’s overall compensation policies to risk, director and nominee qualifications, company leadership structure and the potential conflict of interests of compensation consultants.

The Commission’s release also raises the issue of board diversity — although, unfortunately, not in a prominent fashion. I am concerned that because the release is packed with so many proposals, commenters may not notice the questions related to disclosure of corporate diversity information. I would like to highlight it today.

Investors care a great deal about corporate governance. At the SEC, we are charged with creating and implementing rules that require investors to be provided with the information they need to make informed decisions on the proxy ballot as well as when they make investment decisions. The information that investors require does not remain static, and our rules must be adapted to best serve investors’ needs.

Because of the importance of boards of directors, investors increasingly care about how directors are appointed, and what their background is. This is especially true as American businesses compete in both a global environment, and in a domestic marketplace that is, itself, growing more diverse. In this ever more challenging business environment, the ability to draw on a wide range of viewpoints, backgrounds, skills, and experience is critical to a company's success.

I think it is essential that investors have access to information about the composition of a board of directors, including the directors’ backgrounds, and to know whether or not companies take diversity into consideration when constructing applicant pools for open director seats. Accordingly, I worked with SEC staff to seek input through a Commission release as to whether investors and other market participants require greater information regarding diversity in the boardroom.

Specifically, the release solicits comment on whether the Commission should amend our rules to provide for disclosure of whether diversity is a factor a nominating committee considers when selecting someone for a board position. We are also seeking comment on whether we should amend our rules to provide for additional or different disclosure related to diversity.

In today's environment, diversity in the boardroom is a business necessity and public companies, including mutual funds and other investment companies, would be well served by implementing practices to increase corporate board diversification. I look forward to reviewing the letters we receive on this important issue.

Importance of Diversity for Government Agencies and Market Participants

As we reach out to improve diversity on corporate boards, it is also important that government agencies and financial market participants better reflect our increasingly multicultural environment. I firmly believe that if government agencies and the private sector mirrored the diversity of the general population, issues such as diversity in the boardroom, and other important issues such as financial literacy in minority communities, would be a natural focus.

According to an Equal Employment Opportunity Commission Report on the Federal Workforce, people of color represented a third of the Federal work force in fiscal year 2007, approximately on par with current U.S. demographics, although Latinos remain underrepresented.4

Some Federal government agencies, however, have made more progress than others in building work forces that are more representative of the new American demographics. The EEOC, for example, has a work force that's nearly 61 percent people of color, and people of color constitute 60 percent of its senior employee structure. Unfortunately, the EEOC is not the norm among federal agencies. Moreover, it is clear that representation of people of color at the management level generally tells a dismal story. A more typical example, the Federal Communications Commission has a work force that is 42 percent people of color, but only 10 percent at the senior employee levels.

Where does the SEC fit into this picture? Unfortunately, we don't do as well as we should. While 32 percent of the SEC work force comprised people of color in 2007, only 19% of our attorneys were people of color, and just 7 percent were at senior employee level. It is absolutely clear that the SEC needs to do a lot more to recruit, retain and advance minority candidates at the professional and senior levels.

In my roles as sponsor of the SEC’s Hispanic Employment Committee and of the African-American Council, just two of several special emphasis groups at the SEC, I am dedicated to improving the SEC's diversity. I know Chairman Schapiro and the other Commissioners share my desire and I can assure you that we will be working to do better — much better.

Recently, for example, as one step in bolstering the SEC’s commitment to diversity in the workplace, the SEC appointed Ron Crawford, the Senior Associate Regional Director in the SEC’s Atlanta Regional Office, to be the agency’s first ever Chief Counsel for Diversity and Policy Initiatives. This new position in the agency’s Office of Human Resources reflects the SEC’s ongoing commitment to recruiting and retaining a highly qualified and broadly diverse workforce with different backgrounds, experiences, and views.

In his new role, Ron will advocate for diversity in leadership, employee relations, training and recruitment, and will also work collaboratively with the SEC’s Office of Equal Employment Opportunity to develop strategic plans and coalitions to advance the SEC’s diversity and inclusion efforts.

Two years ago, several SEC staff members partnered with private practitioners to form the Alliance of Securities and Financial Educators (ASAFE), a non-profit organization dedicated to bringing financial and securities education to diverse communities. I am enthusiastic about ASAFE's new initiative to establish a SEC staff-taught securities law seminar at Florida International University, which graduates more Hispanics than any other university in the country. This program is modeled on the SEC's existing program with Howard University, a predominantly African-American institution. These programs provide access to law students of color to a subject matter that might not otherwise be available to them. Since the SEC prefers applicants for attorney positions that have demonstrated an interest in securities regulation, these courses serve to broaden the talent pool from which the SEC recruits.

In addition to government agencies needing to do better, financial market participants in the private sector also need to do more to achieve diversity in the workplace. The lack of diversity in the financial services industry is particularly acute. A 2006 Equal Employment Opportunity Commission report on employment in the financial services industry found that the percentage of African American and Hispanic managers and professionals was lowest in the securities sector (4 % and 3%, respectively).5 Clearly, the industry must do substantially better. Moreover, the financial services industry serves as an important pipeline into corporate boardrooms across this country. Improving the diversity statistics in the industry will significantly expand the pool of candidates for board seats.

Personal History

Finally, I want to end on a personal note to underscore my commitment to diversity and inclusion. It is my personal background, however, that first gave rise to my understanding about diversity and the need for inclusion, as well as for the importance of fair treatment for women and minority communities.

I was born in Cuba and first came to the United States in the early 1960’s as a six year old refugee. I was re-united with my parents when I was 10 years old and in the following seven years, we moved from Miami to Ohio, to Arkansas, and then to Georgia. In many of the places we lived, we were the first Hispanics the people in those communities had encountered. With our broken, hard to understand English, we stood out as different.

Over my lifetime, I have been privileged to have practiced in significant positions in the financial industry and to now serve as a SEC Commissioner. My background and life experience has developed in me a strong desire to reach out and help others who may who may need help in taking advantage of America’s opportunities.

For years, I’ve been involved in a number of organizations focused on women and minorities. For example, for most of this decade I chaired or co-chaired the Latin American Association (LAA), a non-profit organization that has served Georgia's Latino community for over 35 years with comprehensive services that foster healthy, self-sufficient individuals, families and communities. The LAA offers employment, immigration, youth, family, housing, and translation services, as well as English and Spanish language classes. In recent years, the LAA has provided services to over 70,000 Hispanics annually.

I’ve served on various other Boards, including the Mexican American Legal Defense and Education Fund (MALDEF), Girl Scouts Council of Northwest Georgia, Inc., the Georgia Hispanic Bar Association, and the United States Fund for UNICEF Southeast Regional Chapter.


In closing, I want to commend Stanford Law School, CalPERS, and CalSTRS for organizing this event. There is no doubt in my mind that diversity in the corporate boardroom yields tremendous benefits in a myriad of ways. I look forward to hearing what all the panelists have to say and a lively discussion.

Thank you for your attention.

1 Board Diversification Strategy: Realizing Competitive Advantage and Shareowner Value (2009), available at http://www.calpers-governance.org/docs-sof/marketinitiatives/initiatives/board-diversity-white-paper.pdf.

2 Alliance for Board Diversity Report on Women and Minorities on Fortune 100 Boards (2008), available at http://www.elcinfo.com/downloads/docs/Final_1_22_08.pdf.

3 Proxy Disclosure and Solicitation Enhancements, Securities Act Release No. 33-9052, Exchange Act Release No. 34-60280, 74 Fed Reg. 35076 (proposed July 17, 2009) available at http://www.sec.gov/rules/proposed/2009/33-9052.pdf.

4 EEOC Report on the Federal Work Force for Fiscal Year 2007, available at http://eeoc.gov/federal/fsp2007/fsp2007.pdf.

5 EEOC Report on Diversity in the Finance Industry (2006), available at http://www.eeoc.gov/stats/reports/finance/finance.pdf.



Modified: 09/10/2009