Using the Federal Securities Law to Improve Diversity on Corporate Boards.

By representing that "the Governance Committee will include, and instruct any search firm it engages to include, women and racially/ethnically diverse candidates in the pool from which the Governance Committee selects director nominees", the company suggested that it is actively seeking to achieve racial and ethnic diversity in its board membership. Companies that lack a true commitment to diversity will therefore be required to tell the truth; and companies that want to appear to be committed to diversity will have to take action, not just include empty platitudes in their proxy statements. Under those circumstances, the company appeases shareholders who either would not invest in the company in the first instance or who might sell their stock if the truth was disclosed. If a company discloses that its financial statements should no longer be relied on and that it suspects a violation of generally accepted accounting principles has occurred at the company, then normally the company's stock will decline on the stock market. [Extracted from the article]