Results for: board racial diversity
Addressing the challenge of board racial diversity
After taking up the challenge of increasing board gender diversity, companies are now increasingly facing the challenge of achieving board racial diversity. Recent social unrest over systemic racial injustice has pushed racial inequity into sharp relief, leading many companies to consider actions they could take to implement the needed systemic transformation. Because, as it’s often said, change starts at the top, one approach has been to increase the number of African-Americans represented on boards. This recent paper in the Harvard Business Review asks “Why Do Boards Have So Few Black Directors?” And the “Black Corporate Directors Time Capsule Project,” a survey undertaken by Barry Lawson Williams, a retired director who has served on 14 corporate boards, seeks to “capture the experiences” of 50 seasoned Black directors “for the benefit of the next generation of Black corporate directors.” The survey, which in part addresses the issue of recruitment of Black directors, is also replete with other great observations and advice, too extensive to cover in full here, including advice for aspiring directors.
Have we made much progress on board racial and ethnic diversity?
After the murder of George Floyd in 2020 and the national protests that it triggered, many of the country’s largest corporations expressed solidarity and pledged support for racial justice and racial and ethnic diversity, equity and inclusion. Some institutional investors also beefed up their proxy voting policies, demanding both greater transparency and more racial and ethnic diversity. One place that companies looked to implement their commitments to DEI was at the board level. Now, about two years after that horrific event, how much progress have companies made? Using the end of proxy season in 2020 as a starting point, ISS has some recent data. ISS concludes that, while substantial progress has been made in board racial and ethnic diversity, “many boards still do not reflect the diversity of their customer base or the demographics of the broader society in which they operate.”
Will companies accede to calls for actions to improve racial and ethnic diversity in hiring and promotion? California considers a new mandate for racial/ethnic board diversity
In this excellent NYT article from early June, the author painfully explores the view of many African-American executives that, notwithstanding the public condemnations of racism by many public companies and the “multimillion-dollar pledges to anti-discrimination efforts and programs to support black businesses,” still, many of these companies “have contributed to systemic inequality, targeted the black community with unhealthy products and services, and failed to hire, promote and fairly compensate black men and women. ‘Corporate America has failed black America,” said [the African-American president of the Ford Foundation]. ‘Even after a generation of Ivy League educations and extraordinary talented African-Americans going into corporate America, we seem to have hit a wall.’” In the article, a number of Black executives offer recommendations for actions companies should take to begin to implement the needed systemic transformation. And now, third parties—from proxy advisors to institutional investors to legislators—are taking steps to induce companies to take some of these actions. Will they make a difference?
In case there was any doubt, SEC approves Nasdaq proposal to remove Board diversity rules
In August 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) A court challenge to these rules quickly materialized: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned the Fifth Circuit Court of Appeals for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post and this PubCo post.) In December last year, the en banc Fifth Circuit issued its opinion in Alliance for Fair Board Recruitment v. SEC vacating the SEC’s order approving Nasdaq’s board diversity proposal by a vote of nine to eight. According to an article in Bloomberg Law, following the decision, a “Nasdaq representative said the exchange disagreed with the court’s decision, but doesn’t plan to appeal the ruling. An SEC spokesperson said the agency is ‘reviewing the decision and will determine next steps as appropriate.’” (That, of course, was prior to the last election.) That question is now moot: Nasdaq filed a proposal with the SEC seeking to remove from the Nasdaq rules the relevant board diversity provisions to reflect “a Federal court’s vacatur of the Commission’s order of August 6, 2021, approving rules related to Board diversity disclosures. Nasdaq has requested that the Commission waive the operative delay to allow the proposed rule change to become effective on February 4, 2025.” And, this past Friday, the SEC declared the proposal to be immediately effective. Just in case anyone was unsure about the status of the board diversity rules, the effect of the proposal will be to “clarify Nasdaq’s rules by aligning them with the court’s decision.”
UPDATED—en banc Fifth Circuit puts the kibosh on the Nasdaq board diversity rules
(This post updates my post of December 12 to add further discussion of the decision.)
In August 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure, accompanied by a proposal to provide free access to a board recruiting service. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) It didn’t take long for a court challenge to these rules to materialize: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned the Fifth Circuit Court of Appeals—the Alliance has its principal place of business in Texas—for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post and this PubCo post.) (Reuters points out that the same pair of challengers “led the successful U.S. Supreme Court challenge against race-conscious college admissions policies.” In October 2023, a three-judge panel of the Fifth Circuit denied those petitions, in effect upholding Nasdaq’s board diversity listing rules. Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on that panel happened to all be appointed by Democrats. Petitioners then filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. (See this PubCo post.) Not that politics has anything to do with it, of course. That petition for rehearing en banc was granted, vacating the opinion of the lower court. In May, the en banc court heard oral argument, with a discussion dominated by rule skeptics. (See this PubCo post.) Last week, the Fifth Circuit, sitting en banc, issued its opinion in Alliance for Fair Board Recruitment v. SEC, vacating the SEC’s order approving Nasdaq’s board diversity proposal. No surprise there—the surprise was that the vote by the Fifth Circuit was nine to eight. The majority of the Court applied a strict interpretation—some might call it pinched—of the purposes of the Exchange Act to hold that the Nasdaq board diversity rules “cannot be squared with the Securities Exchange Act of 1934,” and, therefore, the SEC had no business approving them. Ironically, the dissent also contended that the SEC’s authority was limited—that its statutory authority to disapprove a rule proposed by Nasdaq, cast by the dissent as a “private entity” engaged in private ordering, was constrained by the Exchange Act. In effect, the dissent contended, the majority was advocating that the agency intrude more on this exercise in private ordering. According to Bloomberg Law, a “Nasdaq representative said the exchange disagreed with the court’s decision, but doesn’t plan to appeal the ruling. An SEC spokesperson said the agency is ‘reviewing the decision and will determine next steps as appropriate.’” But if Nasdaq doesn’t appeal, how likely is it that the new Administration would do so?
En banc Fifth Circuit puts the kibosh on the Nasdaq board diversity rules
In August 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure, accompanied by a proposal to provide free access to a board recruiting service. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) It didn’t take long for a court challenge to these rules to materialize: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned the Fifth Circuit Court of Appeals—the Alliance has its principal place of business in Texas—for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post and this PubCo post) In October 2023, a three-judge panel of the Fifth Circuit denied those petitions, in effect upholding Nasdaq’s board diversity listing rules. Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on this panel happened to all be appointed by Democrats. Petitioners then filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. (See this PubCo post.) Not that politics has anything to do with it, of course. That petition for rehearing en banc was granted, vacating the opinion of the lower court. In May, the en banc court heard oral argument, with a discussion was dominated by rule skeptics. (See this PubCo post.) Yesterday, the Court issued its opinion in Alliance for Fair Board Recruitment v. SEC. No surprise there—the majority of the Court held that the Nasdaq diversity rules “cannot be squared with the Securities Exchange Act of 1934.” The surprise was that the vote on the Fifth Circuit was nine to eight. According to Bloomberg Law, a “Nasdaq representative said the exchange disagreed with the court’s decision, but doesn’t plan to appeal the ruling. An SEC spokesperson said the agency is ‘reviewing the decision and will determine next steps as appropriate.’” But if Nasdaq doesn’t appeal, how likely is that the new Administration would do so?
Below is a very quick paragraph to alert you to the decision. I plan to write a much longer post on the case (including the dissent) in the next day or so. Stay tuned for the update.
Fifth Circuit grants petition for rehearing en banc for Nasdaq board diversity rule
In August 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure, accompanied by a proposal to provide free access to a board recruiting service. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) It didn’t take long for a court challenge to these rules to materialize: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned the Fifth Circuit Court of Appeals—the Alliance has its principal place of business in Texas—for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post and this PubCo post) In October 2023, a three-judge panel of the Fifth Circuit denied those petitions, in effect upholding Nasdaq’s board diversity listing rules. Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on this panel happened to all be appointed by Democrats. Petitioners then filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. (See this PubCo post.) Not that politics has anything to do with it, of course. That petition for rehearing en banc has just been granted by the Fifth Circuit—on Presidents’ Day—and the opinion of the lower court was vacated.
It’s not over till it’s over: Petition filed for rehearing en banc on Nasdaq board diversity rule
As discussed in this PubCo post, on October 18, a three-judge panel of the Fifth Circuit denied the petitions filed by the Alliance for Fair Board Recruitment and the National Center for Public Policy Research challenging the SEC’s final order approving the Nasdaq listing rules regarding board diversity and disclosure. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) Given that, by repute, the Fifth Circuit is the circuit of choice for advocates of conservative causes, the decision to deny the petition may have taken some by surprise—unless, that is, they were aware, as discussed in the WSJ and Reuters, that the three judges on this panel happened to all be appointed by Democrats. Yesterday, the Petitioners filed a petition requesting a rehearing en banc by the Fifth Circuit, where Republican presidents have appointed 12 of the 16 active judges. Not that politics has anything to do with it, of course.
Federal court holds unconstitutional California’s board diversity statute regarding “underrepresented communities”
There have been a number of challenges to California’s board diversity legislation, SB 826, the board gender diversity statute, and AB 979, the board diversity statute regarding “underrepresented communities.” In two cases, Crest v. Padilla I and II, filed in state court, the plaintiffs notched wins and the court issued injunctions against implementation and enforcement of these two statutes. Both of these cases are currently on appeal, and the injunctions remain in place. But there were also cases filed in federal court, and, in one of those cases, Alliance for Fair Board Recruitment v. Weber, the U.S. District Court for the Eastern District of California has just granted the Plaintiff’s motion for summary judgment, concluding that AB 979 is unconstitutional on its face. The federal court decision could have reverberations in other states and potentially influence the ongoing state court appeals (as could an earlier decision on SB 826 by the Court going the other way. See the third SideBar below.)
ISS study finds percentage of racial/ethnic minority directors finally hits 20% mark
A study of companies in the Russell 3000 just released by ISS showed that, for the first time, directors who self-identified as racial and ethnic minorities accounted for 20% of all board directorships. The study found that each of the minority groups analyzed experienced growth in the percentage of director seats held, with the greatest growth (90% over the study period) occurring among African-American directors, who now hold 8.3% of all board seats in the study group. According to the Head of ISS Corporate Solutions, these percentages “represent a watershed moment for minority corporate directors broadly and Black directors in particular….The analysis shows the impact of increasing and continual institutional investor engagement with portfolio companies on matters around board diversity coupled with growing stakeholder pressure from various quarters over the past two years.” Still, as she told Reuters, “[w]hile this is a huge sea change in terms of the percentages, it still falls short of the ethnic breakdown of the U.S. population….It’s a watershed moment but probably not something to pat ourselves on the back too much about.”
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