'Financial Expert': A Subtle Blow to the Pool and Current Pipeline of Women on Corporate Boards

Abstract

Governmental laws and regulations play critical roles and have impacting influences and consequences on corporations and their management and stakeholders as well as the public at large. Sometimes legislative initiatives and administrative actions have detrimental effects on groups of persons, which impacts may or may not be the intended consequences of the governmental protectionism. In the wake of the corporate scandals of the early 2000s, including Enron, WorldCom and Tyco International (the “Enron-type Scandals”), the President of the United States of America signed into law a bi-partisan initiative called the Sarbanes-Oxley Act of 2002 (“SOX”) in an attempt to restore investor confidence in the U.S. securities market following devastating corporate scandals that rocked the investment community and depleted worker savings. Section 407 is part of SOX (the “Expert Law”), which, in short, required the Securities and Exchange Commission (the “SEC”) to promulgate rules obligating certain security issuers to disclose if the applicable organization’s audit committee has at least one person who is a financial expert (as the term would be defined specifically by the SEC) and if no such person, the reason of such absence. The SEC met its regulatory obligation with Section 229.407(d)(5) of the Code of Federal Regulations (Item 407) (the “Expert Regulation”). However, the title and definition for the audit committee expert contain a gender bias and have negative inadvertent consequences against women on public company boards of directors. In this Article, “Financial Expert”: A Subtle Blow to the Pool and Current Pipeline of Women on Corporate Boards (this “Article”), the author addresses this bias and its negative inadvertent consequences and provides proposals that may curtail such bias and consequences, while achieving the goal of investor and public protection.