Although advocacy groups and institutional investors have long pushed for greater boardroom diversity, state legislatures have begun enacting or proposing legislation aimed at accelerating such efforts.
California was the first state to pass a law legislating diversity, requiring publicly traded domestic and foreign corporations with headquarters in California to have at least one female on their boards. By the end of 2021, companies must have three females for boards with six or more directors, two for boards with five directors, and one female with boards of four or fewer directors.
In September 2020, California enacted a law that requires board representation from under-represented communities — Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identify as gay, lesbian, bisexual or transgender. By the end of 2022, the minimum number of directors from under-represented communities must be three if the board has nine or more directors, two if the board has five to eight directors, and one if the board has four or fewer directors.
Though it does not come with specific diversity mandates or disclosure requirements, Colorado has passed a resolution encouraging “equitable and diverse gender representation on corporate boards.” The resolution urges public corporations in Colorado with nine or more directors to have at least three women; with five to eight directors, two women; and with fewer than five directors, at least one woman on the board.
Publicly held domestic and foreign corporations with principal offices located in Illinois are required to provide certain disclosures in connection with diversity in their annual reports to the Secretary of State. They include the self-identified gender of each board member; whether or not board members self-identify as members of a minority group and if so, which group; a description of the company’s process to identify and evaluate board and executive officer nominees demonstrating how diversity factors into the process; and a description of the company’s policies and practices for promoting diversity, equity and inclusion. In 2020, new legislation was proposed that closely tracks California’s board diversity law.
Maryland tax-exempt, non-stock domestic corporations with operating budgets of more than $5 million and domestic stock corporations with total sales of $5 million or more must include in their state annual reports the number of female board members as well as the total number of board members. Private companies with share ownership of at least 75 percent family members are exempt from this law. There is a sunset provision providing that it will remain in effect until September 30, 2029.
New York’s board diversity law mandates a study regarding women directors on the boards of New York-based companies. Both public and privately held domestic and foreign corporations authorized to do business in New York must report the number of female directors on their board, along with the total number of directors.
Effective June 2020, Washington State passed a law requiring specific diverse board representation. The law generally applies to public companies incorporated in Washington and requires that these companies either have a “gender-diverse board” or provide shareholders with a “board diversity discussion and analysis” as to why not.
Board diversity legislation has been proposed in several states. Proposed Massachusetts legislation requires that by the end of 2021, publicly held domestic and foreign corporations with principal executive offices in the state must have a minimum of one person self-identifying as female director on the board. Additionally, by the end of 2023, such companies would need three female directors if the board has six or more directors and two female directors if the board has five or fewer directors. Violations carry a $100,000 penalty.
Michigan’s proposed legislation would require that publicly held domestic and foreign corporations with principal executive offices in the state currently have at least one person self-identifying as female director on the board. Additionally, by January 1, 2023, such companies must meet numerical requirements that align with California’s gender requirements. Violations carry penalties similar to California.
In 2019, a resolution was proposed in Pennsylvania encouraging equitable and diverse gender representation on boards, along with broadly calling for leadership opportunities for women. The resolution urges that by 2021 Pennsylvania companies meet the same requirements set forth in the California statute with respect to under-represented communities.
Katayun I. Jaffari is chair of Cozen O’Connor’s Corporate Governance & Securities Group. She handles complex securities transactions for businesses in industries including life sciences, energy, technology and fintech.
Paul D. Hallgren is an associate at Cozen O’Connor. He is based out of the firm’s Minneapolis office.