Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
New York State recently enacted a new law (A 6330/S 4278) mandating a study of the proportion of female members on the boards of corporations authorized to do business in the state. To implement the study, the law requires foreign and domestic corporations to report the number of directors sitting on their board and how many of those directors are women. This information must be provided to the secretary of state as part of the corporation’s routine filing statement.1 The law does not explicitly identify the ramifications for corporations that fail to comply. Governor Andrew Cuomo (D) signed the law on December 30, 2019, stating that “[t]his new study will help . . . guide the development of new policies to ensure more women have a seat at the proverbial table.”
The New York Study
Under the law, the department of state must collaborate with the department of taxation and finance to conduct the study. Using the corporate reporting data, the study must address several issues, including but not limited to: “the number of women directors and the total number of directors that constitute the board of each corporation; an analysis of the change in number of women directors from previous years; and the aggregate percentage of women directors on all such boards of directors” in New York. The state department will publish the study findings on its website, with the first report due on or by February 1, 2022. Reports must be posted every four years thereafter. The New York legislature justified the measure as “a proactive approach to address historical inequality and end discriminatory practices.”
A Burgeoning Trend
Legislative efforts to press corporations to improve the representation of women on corporate boards seem to be a growing trend. California lit the fuse in 2018 with a law that compels a particular make-up of boards’ membership. That law (SB 826) required publicly held corporations, with principal executive offices located in California, to have at least one woman on their corporate board by the end of 2019. By the end of 2021, corporations with five or more directors on the board must include at least two female members, and boards with six or more board seats must include at least three women. The law—which has been challenged in court—also institutes steep penalties for corporations that do not comply, with a $100,000 fine for a first violation and $300,000 for subsequent violations. In 2019, lawmakers in at least two states (New Jersey and Michigan) introduced bills similar to the California law, though they have yet to advance.
Along with New York, Maryland and Illinois recently imposed corporate reporting requirements to promote gender diversity on corporate boards. The Maryland law (HB 1116/SB 911), effective October 1, 2019, requires tax-exempt domestic nonstock corporations with operating budgets over $5 million and domestic stock corporations with sales over $5 million to report the number of female board members and the total number of board members, as part of their annual personal property tax filing.2 By January 1 of each year, the state comptroller must submit a report to the General Assembly on the percentage of women members among covered corporations and must make the report publicly available.
The more expansive Illinois law (HB 3394) requires a publicly held corporation with a principal executive office in Illinois to report annually to the secretary of state, beginning no later than January 1, 2021, the number of women and minority board members. Specifically, a covered corporation must disclose: (1) “data on specific qualifications, skills, and experience that the corporation considers for its board of directors, nominees for the board of directors, and executive officers;” (2) the self-identified gender of each board member; (3) “whether each member of its board of directors self-identifies as a minority person and, if so, which race or ethnicity to which the member belongs;” (4) the organization’s process for identifying and assessing nominees for the board of directors and for executive officers, including whether and how demographic diversity is considered; and (5) any “policies and practices for promoting diversity, equity, and inclusion among its board of directors and executive officers.”3 The law requires the University of Illinois Systems to publish a study on the diversity of state corporate board membership by March 1, 2021, and on March 1 every year thereafter, including both aggregate data and an individualized rating for each corporation.
Employers in New York, Maryland, and Illinois should be prepared to provide information about their board composition under these new state laws. And corporations across the country should watch for further legislative developments on this hot topic. Corporations also may wish to take a hard look now at the compositions of their board and executive teams and explore proactive steps, as appropriate, to encourage diversity, as legislatures are taking notice.
1 N.Y. Bus. Corp. Law § 408.
2 Privately held corporations where at least 75% of the shareholders are family members are exempt from this requirement.
3 The Illinois bill initially required publicly held corporations to have at least one female or minority board member, but that requirement was amended out.