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Volume X, Number 217

August 03, 2020

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Will The "Improving Corporate Diversity through Diversity Act of 2019" Be The Plaintiffs' Bar Next El Dorado?

Yesterday, Liz Dunshee at The Proxy Season Blog took note of new support for the “Improving Corporate Diversity Through Diversity Act of 2019" from the U.S. Chamber of Commerce and other business organizations.  If enacted, the ICDTDA would, among other things, require issuers to disclose in proxy statements the racial, ethnic, and gender composition of their boards, nominees, and executive officers.  These disclosures would be based on "voluntary self-identification" (presumably, by the director, nominee or officer).

If enacted, one wonders whether the ICDTDA will provide new fodder for challenges to issuers' proxy statements.  The fundamental question, of course, is whether a person's self-identification can ever be wrong.  What if a person self-identifies but knows that he or she has no basis for the identification?  What if a person has a sincere belief in his or her identification, but has no factual basis for that belief?  For that matter, what makes a person's identification wrong?  Will some quota of DNA ancestry be required?   Senator Warren, for example, controversially self-identified as Native American despite being of primarily European descent.  If she were identified as Native American in a proxy statement, could either she or the issuer be held liable?  How does one objectively assess ethnicity which doesn't depend on DNA?

Does a director owe a fiduciary duty when self-identifying?  If so, what standard will be applied - good faith, negligence, intentional misconduct?  Will an issuer be liable if it knows, or should known, that a director has incorrectly self-identified his or her race, ethnicity and/or gender?  What level of "due diligence" will issuers be required to undertake to confirm the accuracy of the self-identifications?

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...