Board Diversity Legislation
Even in the private equity sector there has been a demand for women by investors as the performance of more diverse companies has been steadily increasing relative to those with no women on their boards. Similarly, having all-male all-white boards is a common sign of bias within the appointment process signifying a lack of corporate responsibility.
Studies have long confirmed the clear business case for board diversity–heterogeneity allows boards to better identify and manage risks due to the range of skill sets and experiences that diversity brings to boardroom discussions. Furthermore, a diverse board leads to a better understanding of customers and provides better goods and services for the customers.
Goldman Sachs CEO David Solomon has told CNBC that the investment bank would not take companies public unless they had at least one “diverse” board member.
“Starting on July 1 in the U.S. and Europe, we’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women.”
As the economic and social significance of board diversity becomes more widely recognized, some U.S. state legislatures have taken initiatives to address the rising concerns for demographic variety in the corporate boardroom. Listed below is the run-down of each state that has introduced and/or passed bills regarding diversity.
By the end of 2019, every publicly held domestic or foreign corporation whose principal executive office is in California is required to have a minimum of 1 female director on its board. Further, by the end of 2021, each one with 6+ board seats must have at least 3 women, those with 5 seats must have at least 2 women, and those with 4 or fewer seats must have at least 1 woman.
Though initially introduced with specific representation requirements for every corporation to have a minimum of 1 female and 1 African-American director on its board, this bill now only requires that all publicly held domestic or foreign corporations whose principal executive offices are in Illinois must annually file public disclosures regarding the racial, ethnic, and gender demographics of their board.
New York (2019) S.4728
This bill is amending the state’s current Business Corporation Law to conduct a “women on corporate boards study” aimed at collecting data about board diversity in companies in the state. Domestic and foreign corporations authorized to conduct business within New York are required to report the number of directors and the number of women on their board on their Biennial Statement Filings. By February 1st 2022 the Department of State will publish these findings and will repeat the process every 4 years.
Maryland (2019) HB1116 SB0911
This bill outlines annual data reporting requirements for corporate boards that will last through September 30th 2029. Effective October 1st 2019 tax-exempt domestic nonstock corporations with operating budgets exceeding $5M and domestic stock corporations with total sales exceeding $5M will have to include number of women and total members on their annual reports to the State Department of Assessments and Taxation to be reported online on January 1st2020. Private companies where at least 75% of shareholders are family members are exempt from reporting.
Washington (2020) RCW 23B.08.120
Requested by the Washington State Bar Association to amend the Washington Business Corporation Act, the 23B RCW requires corporations that are organized under Washington law and that file public reports with the Securities and Exchange Commission (SEC) to satisfy gender diversity requirements with respect to their boards of directors, among other revisions. By Jan. 1, 2020, the law requires a public company to maintain a board of directors that is composed of individuals at least 25% of which self-identify as women or to alternatively provide its shareholders a discussion and analysis concerning its approach to board diversity in advance of its annual meeting.
When the SEC approved the Board Diversity rule in August 2021, it became part of Nasdaq’s corporate governance requirements as Rules 5605(f) and 5606. Subject to certain exceptions, the Rule requires each Nasdaq-listed company to 1) publicly disclose diversity statistics regarding its board of directors, and 2) have, or explain why it does not have, at least two diverse directors, including at least one who self-identifies as female and one individual who self-identifies as an underrepresented minority or LGBTQ+.
Past resolutions are written motions that cannot progress into a law, but instead function as signifiers of the legislature’s position on certain issues and encouragements for certain actions to be made.
By the end of 2018, all publicly held domestic or foreign corporations whose principal executive offices are in Massachusetts with 9+ members should have a minimum of 3 female directors. Boards with fewer than 9 members should have at least 2 female directors.
In addition, the legislature urges these corporations to disclose the gender diversity on their boards and implement policies and practices designed to increase the number of female directors.
By the end of 2018, all publicly held domestic or foreign corporations whose principal executive offices are in Illinois with 9+ members should have at least 3 female directors. Boards with 8 to 5 members should have a minimum of 2 women and those with 4 or less members should have at least 1 woman.
By the end of 2020, all publicly held domestic or foreign corporations whose principal executive offices are in Pennsylvania should have boards comprising or at least 30% women.
By the end of 2020, all publicly held domestic or foreign corporations whose principal executive offices are in Colorado with 9+ members should have at least 3 female directors. Boards with 8 to 5 members should have at least 2 women and those with 4 or less members should have at least 1 woman.
This article is current as of March 21st 2023.