Legislating Corporate Board Diversity and the Inclusion Imperative

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Heather Adams Heather Adams

Legislating Corporate Board Diversity and the Inclusion Imperative

In a 2018 study conducted by A Corporate Board Member and Grant Thornton, LLP, researchers found that 14 percent of surveyed directors ranked gender diversity in the selection of new board members as a top concern. This is with good reason as women remain nationally underrepresented in board settings. According to a 2018 study conducted by the research organization Catalyst, women make up approximately 20 percent of S&P 500 board seats. Twelve of the Fortune 500 companies are not represented by any women on their boards whatsoever, and the number of Fortune 500 female CEOs dropped by 25 percent this year, from 32 to 24.

States across the country are passing legislation that makes corporate board diversity not merely a concern, but the law. For instance, on September 30, 2018, California became the first state in the nation to require that publicly held corporations, headquartered within the state, include female directors on their boards. The statute, CA Corp Code § 2115, requires “a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California” to have at least one female on its board of directors by the close of the 2019 calendar year. Moreover, this minimum number will rise at the close of the 2021 calendar year to two women for corporations with five directors and to three for corporations with six or more board members. Noncompliance will result in significant fines. 

Illinois has also joined in legislating board diversity. In August 2019, Governor J.B. Pritzker signed into law Public Act 101-0589, known as the Illinois Business Corporation Act. Although this bill does not go as far as California in mandating representation, it does require publicly-traded companies to report the demographics of their boards and plans for promoting diversity to the Illinois Secretary of State’s Office beginning January 2021. State lawmakers found "that women and minorities are still largely underrepresented nationally in positions of corporate authority," according to the bill's findings and purpose. "This low representation could be contributing to the disparity seen in wages made by females and minorities versus their white male counterparts."

In Ohio, on September 9, 2019, members of the state House of Representatives introduced House Concurrent Resolution 23, which would urge all private and public companies and institutions doing business in Ohio to commit to increasing the gender diversity on their boards of directors and in senior management positions and to set and publish goals by which to measure their progress. Likewise, New Jersey, Massachusetts and Pennsylvania have passed similar legislation. Other states, including New York, have passed non-binding guidelines, often as a precursor to legal action.

The Inclusion Imperative for Employers

Corporate culture can no longer be considered a soft issue by management and boards – it’s a compliance issue which impacts companies at all levels. Nimble companies have boards that support a culture of inclusion, help management define a common vision for what diversity inclusion means and work to embed that vision directly into the business strategy. Understanding the ever-changing network of federal, state and local laws, as well as where they intersect and where they diverge is crucial in managing corporate compliance. Moreover, corporate diversity regulations often portend political trends and future anti-discrimination legislation to come. For instance, over the course of one year, the state of Illinois has enacted a cohort of fair employment laws, including redefining covered employers under the Illinois Human Rights Act to include employers with just one employee; additional protections for pregnant women and expanding pay equity protections for women and African Americans. In today’s dynamic environment, capable corporate governance is every bit as much about superior leadership and people as it is about sound judgment and inviolate ethics. Healthy boards lead to healthy leaders, which in turn will foster and maintain a healthy culture and engaged workforce today and tomorrow.

If you have additional questions, please contact Heather Adams or another member of our Labor, Employment and Immigration Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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