On February 6, 2019, the staff of the US Securities and Exchange Commission (SEC) issued two identical Regulation S-K compliance and disclosure interpretations (C&DIs), C&DI 116.11 and C&DI 133.13. These C&DIs address the extent to which a director’s self-identified diversity characteristics need to be disclosed as director background pursuant to Item 401(e) of Regulation S-K or in connection with the discussion of a company’s policy with regard to the consideration of diversity in identifying director nominees, as well as the implementation and assessment of this policy pursuant to Item 407(c)(2)(vi) of Regulation S-K. The text of these C&DIs reads as follows:
Question: In connection with preparing Item 401 disclosure relating to director qualifications, certain board members or nominees have provided for inclusion in the company's disclosure certain self-identified specific diversity characteristics, such as their race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background. What disclosure of self-identified diversity characteristics is required under Item 401 or, with respect to nominees, under Item 407?
Answer: Item 401(e) requires a brief discussion of the specific experience, qualifications, attributes, or skills that led to the conclusion that a person should serve as a director. Item 407(c)(2)(vi) requires a description of how a board implements any policies it follows with regard to the consideration of diversity in identifying director nominees. To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered the self-identified diversity characteristics referred to above (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company's disclosure of those characteristics, we would expect that the company's discussion required by Item 401 would include, but not necessarily be limited to, identifying those characteristics and how they were considered. Similarly, in these circumstances, we would expect any description of diversity policies followed by the company under Item 407 would include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics.
If a director or a nominee has self-identified diversity characteristics in response to a specific question on a director and officer questionnaire or voluntarily provided such information, and the board has considered such information in evaluating the person for board membership, before making any disclosure in a proxy statement or other SEC filing, the company should confirm that such director or nominee has expressly consented to public disclosure of their information.
If a company intends to include a discussion of self-identified diversity characteristics in a proxy statement or other SEC filing in accordance with the C&DIs, it should draft the appropriate disclosure sufficiently far in advance to allow the director(s) and/or nominee(s) who provided such information to assess whether their respective information is being accurately portrayed in the public documents.
If a company has considered such self-identified diversity characteristics in evaluating a person for board membership, the company should also make sure to revisit the description of its diversity policy as well as the related discussion as to how the policy is implemented to make sure that the disclosure aligns with the current practices of the board in this regard.