New York Enacts Legislation Related to Board Diversity
New York recently enacted the “Women on Corporate Boards Study” law (S. 4278), joining a growing number of states requiring organizations to report their board composition. The new law applies to domestic and foreign corporations “authorized to do business” in the state. Given the expanse of companies doing business in New York, this law may have a broad reach and impact organizations based far from New York.
New York’s new law mandates a study on the number of female directors on the boards of corporations doing business in New York. Under the new law, both foreign and domestic corporations, including publicly traded and privately held, are required to report the number of directors appointed to their board and to report how many directors are female. The New York Department of State will collaborate with the Department of Taxation and Finance to conduct the study, which will include an analysis of the change in the number of women directors compared to prior years and the collective percentage of women directors on all such boards. The initial study will be published by February 1, 2022.
In support of the legislation, New York State Senator Liz Krueger noted that “New York is home to some of the world’s largest and most influential corporations, so what we do here reverberates far beyond our borders.”
Other States Promoting Diversity on Boards
Board diversity has been gaining traction (see Seeking Unity, Not Uniformity*: Diversity and the Corporate Board of Directors), and New York is not the only state implementing laws related to diversity on corporate boards. California, Colorado, Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, and Washington have similarly introduced or passed legislation or resolutions related to board diversity. Some highlights include:
California: Requires publicly held corporations with principal executive offices in California to have at least one female board director by the end of 2019. By the end of 2021, at least three female directors must sit on boards with six or more directors. (For boards with five or fewer directors, the numbers decrease.) For more information, see California Law Pushes Virtue of Diversity Requiring Females on Boards of Directors and JL Live: Corporate Board Diversity.
Maryland: Requires certain corporations to report the number of female board members and the total number of board members on an annual basis.
Illinois: Requires publicly held domestic and foreign corporations with a principal executive office in Illinois to report, beginning no later than January 1, 2021, the number of women and minority board members on an annual basis. See New Illinois Law Requires Corporations to Report Diversity on Corporate Boards for more information.
According to the state’s press release on the new law, the New York legislation will take effect on June 27, 2020. Board diversity likely will remain a hot topic on both the state and federal level as we move into the new decade. For example, at the federal level, in November 2019 the U.S. House of Representatives passed the “Improving Corporate Governance Through Diversity Act of 2019” (H.R. 5084), which would amend the Securities Exchange Act of 1934 to require certain organizations to disclose the gender, race, ethnicity, and veteran status of their board of directors, nominees, and executive officers. The bill also requires the U.S. Securities and Exchange Commission to create a Diversity Advisory Group, which would ultimately “make recommendations of strategies that issuers could use to increase gender, racial, and ethnic diversity among board members.”
In addition to legislative initiatives at the federal and/or state level, we have also seen in recent proxy seasons an increase in the call for board diversity by large institutional investors, proxy voting firms and by activists, all seeking best practices for board and corporate governance. Thus, whether prompted by legislation or otherwise, we expect that the call to diversify the appointment of directors to corporate boards may intensify in the coming years.