Push for Boardroom Diversity Extends Far Beyond California
While California’s legislative mandates have garnered the most attention, several other state legislatures have enacted or are considering board diversity legislation. In addition, a recent proposal by influential proxy advisory firm Institutional Shareholder Services Inc. (ISS) has the potential to effectively mandate racial and ethnic diversity on all public company boards, regardless of applicable state law.
Besides California, Washington is the most recent state to enact board diversity legislation. Pursuant to Substitute Senate Bill 6037, signed by Washington’s governor on March 27, 2020, public companies based in the state will be required to either have a “gender-diverse board” (defined as at least 25 percent female) by January 1, 2022, or comply with specified board diversity disclosure requirements. SSB 6037 is thus similar to California’s gender diversity mandate, though it subjects companies without sufficient boardroom diversity to potentially embarrassing disclosure requirements rather than imposing a financial penalty. Other states to enact or consider board diversity legislation include Colorado, Hawaii, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania.
Meanwhile, all public companies should take note of a proposed policy change announced by ISS on October 14, 2020. While ISS’s current voting guidelines recommend voting against nominating committee chairs at boards with no gender diversity, ISS is now proposing, beginning in 2022, to extend this policy to “companies where there are no identified racial or ethnically-diverse board members.” Unlike California’s new diversity mandate, ISS’s proposal would be shielded from legal challenge precisely because it would not have the force of law.