FROM THE CLOSET TO THE BOARDROOM: REGULATING LGBT DIVERSITY ON CORPORATE BOARDS.

• Author: Nourafshan, Alexander M.

1. INTRODUCTION

   In corporate America, diversity is the new black. It is no secret that corporations have aggressively prioritized diversity in recent years, (1) attempting to remedy a history of underrepresentation for various minority groups. (2) Major corporations have established offices of diversity and inclusion, (3) hired chief diversity officers, (4) implemented diversity hiring programs, (5) offered diversity-oriented mentorship programs, (6) enacted inclusive nondiscrimination policies, (7) and hosted extensive diversity trainings in the workplace. (8) In some regards, the modern workplace is beginning to reflect the diverse demography of the county. (9) Diversity, it seems, is succeeding at taking hold in corporate culture--at least in terms of professed values. However, these values are not always reflected at the highest levels of a company, no matter how much a company touts a commitment to diversity. (10)

   A disjuncture remains between increased emphasis on diversity and meaningful representations of diversity in the C-Suite and on corporate boards. (11) Ninety-seven percent of senior management teams of U.S.-based corporations fail to reflect the racial demography of the overall workforce. (12) White men remain overrepresented in management and executive levels of corporations. The financial services industry provides a compelling example of the stark division in representation. In this industry, white men constitute thirty-one percent of the labor force, yet hold sixty-four percent of leadership positions. (13) Women, on the other hand, make up fifty-nine percent of the total workforce in the financial services industry, but comprise only twenty-nine percent of executive and senior level positions. (14) Similarly, racial minorities make up approximately thirty-percent of the workforce, but hold a mere ten percent of executive and senior level positions. (15) Approximately eight percent of the American financial services workforce is Latino, however, only three percent of corporate executives are Latino. (16) And while twelve percent of the workforce is black, only 2.5 percent of executive positions are held by black men and women. (17)

   Fortune 500 companies present a similar picture. White men hold roughly seventy percent of board seats among Fortune 500 companies. (18) Tim Cook, the CEO of Apple, is the only openly homosexual CEO in the Fortune 500. (19) There are no openly transgender executives or board members in the Fortune 500. (20) Some industries reflect particularly significant deficiencies in diverse representation. As shown, the financial services industry "shows a severe underrepresentation" of women and racial minorities at senior and executive positions. (21)

   This is also the case with diversity on corporate boards. As former SEC chair Mary Jo White has observed, "[t]he low level of board diversity in the United States is unacceptable." (22) Diversity on corporate boards is low by any measure. (23) Women, (24) racial minorities, (25) and LGBT individuals (26) are all underrepresented in the boardroom. (27) The phenomenon of underrepresentation of racial minorities, women, and LGBT individuals on corporate boards is not unique to the United States, but is observable in corporations around the world. (28) Data suggests that women and racial minorities are also underrepresented on nonprofit and private foundation boards. (29)

   Recognizing the stagnant progress for various underrepresented groups in the boardroom, the SEC introduced a diversity disclosure rule for public reporting companies in 2009. (30) While the SEC's diversity disclosure rule was significant in the sense that the rule formalized the SEC's recognition of minority underrepresentation on corporate boards, this rule has not been successful, either in terms of eliciting meaningful information from disclosures, or impacting the demography of corporate boards. (31) Even former SEC chair, Mary Jo White, acknowledged that the SEC's diversity disclosure regime has been unsuccessful to this point. (32) This article proposes reforms to the SEC's diversity disclosure rule to generate more substantive disclosures about diversity on corporate boards, and to indirectly encourage companies to diversify at the board level.

   This article examines two questions in depth: First, should LGBT diversity be considered coextensive with racial and gender diversity in the context of corporate boards? While scholars and practitioners have extensively addressed gender (33) and racial (34) diversity in the corporate board context, LGBT representation on corporate boards has been relatively unexplored in legal scholarship. (35) This article argues that LGBT status is an important form of diversity in the corporate context for many of the same reasons that other forms of demographic diversity, like race and gender, are important. This article imports a framework from the critical race theory context, which posits that transformative change for marginalized groups requires addressing multiple forms of subordination, supporting the position of this article that efforts to increase demographic diversity should include LGBT diversity along with racial and gender diversity. Like women and racial minorities, LGBT individuals are significantly underrepresented on corporate boards, warranting explicit inclusion in reform efforts. (36)

   Second, this article considers mechanisms for achieving greater demographic diversity on corporate boards, including gender identity and sexual orientation diversity. This article ultimately argues that the SEC should amend its diversity disclosure rule by defining diversity to include LGBT status and mandating demographic disclosures. This paper argues that including LGBT diversity as part-and-parcel of demographic diversity is consistent with the explicitly pro-LGBT stance that many corporations, consumers, and shareholders have already embraced. This article addresses the unique issues implicated by disclosing LGBT status as context for discussing possible regulatory reforms to diversify corporate boards.

   This article proceeds in four parts: Section II surveys the current state of diversity on corporate boards and in senior positions of major companies, noting the disconnect between efforts and outcomes with respect to diversity. This section also addresses the business case for diversity, demonstrating why a lack of diversity is problematic from a business perspective, in addition to the equality-based arguments for inclusion. This section pays particular attention to the business rationale in the LGBT context. This section also addresses critiques of the business case for diversity. Section III discusses the regulation of diversity on corporate boards, focusing on the SEC's diversity disclosure rule. This section also discusses international approaches to regulating corporate diversity, and other means of regulating corporate boards. Section IV proposes addressing the lack of diversity on corporate boards by amending, expanding, and enforcing the SEC's diversity disclosure rule. This section ultimately proposes an enhanced mandatory disclosure regime to promote transparency, and, possibly, indirectly increase demographic diversity on corporate boards. This section argues that robust diversity disclosures in conjunction with investor and consumer activism can catalyze meaningful change in terms of diversifying corporate boards. The final section briefly concludes.

2. DIVERSITY IN CORPORATE AMERICA

   1. Current State of Diversity in Corporate America

      There is a disconnect between efforts and outcomes with respect to achieving corporate diversity. In terms of effort, there has been significant emphasis and investment in diversity-related initiatives within corporations. (37) In terms of outcomes, corporations have been patently unsuccessful at achieving diversity at the board level. (38) This section underscores the challenges that even well-meaning corporations face putting pro-diversity priorities into practice at the highest-levels of corporate leadership.

      1. Efforts--Corporations "Talk the Talk"

         Corporate boards and executives recognize diversity as an important priority area, and have articulated a general commitment to increasing diversity in the workplace. (39) As described above, corporations have adopted a variety of policies and programs intended to diversify the workforce, and to consecrate inclusion as a central tenet of corporate culture. (40) From diversity recruitment programs (41) to inclusion-oriented training, (42) many companies have formal policies that reflect a corporate commitment to diversity.

         Some companies have "put their money where their mouth is" to achieve these goals. For example, Apple has committed $50 million to recruiting and retaining larger numbers of women, racial minorities, and veterans. (43) Similarly, Intel has committed $300 million to diversity initiatives, and set a goal of increasing diversity of underrepresented groups by fourteen percent by 2020. (44) On a more day-to-day level, "many managers are [increasingly] tasked with the complex goal of 'managing diversity'--which can mean anything from ensuring equal employment opportunity compliance, to instituting cultural sensitivity training programs, to focusing on the recruitment and retention of minorities and women." (45) There are several organizations dedicated to improving corporate diversity, (46) including the DirectWomen Initiative, (47) the Alliance for Board Diversity, (48) Catalyst (49) and the InterOrganization Network ("ION"). (50)

         Government agencies have also made concerted efforts to increase diversity. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required nine agencies to establish Offices of Minority and Women Inclusion ("OMWI"). (51) OMWIs are tasked with promoting diversity within the nine subject regulatory agencies and among regulated institutions. (52) Among...