Results for: board racial diversity
The Conference Board reports on board diversity
The Conference Board has just released a new report, Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: 2021 Edition, a primary focus of which is board diversity. According to the press release, the study is the “most current and comprehensive review of board composition, director demographics, and governance practices at US public companies.” Key to the study is that more companies are now actually disclosing the racial and ethnic composition of their boards (based on self-reporting by directors): companies providing data are up from 24% of the S&P 500 in 2020 to 59% in 2021, and from 7.7% of the Russell 3000 in 2020 to 26.9% in 2021. With regard to progress in board diversity, the data shows that women have made significant advances—on the Russell 3000 this year, women represented about 38% of this year’s newly elected class of directors, bringing total representation of women on Russell 3000 boards to 24.4%, up from 21.9% in 2020. However, boards have significant catching up to do when it comes to racial and ethnic diversity. Based on self-reported data, “boards remain overwhelmingly white,” and, for 2021, the class of new directors was 78.3% white, with only 11.5% African-American, 6.5% Latinx/Hispanic and 3.1% Asian, Hawaiian or Pacific Islander.
First legal challenge to California’s board gender diversity statute heads to trial
You might remember that the first legal challenge to California’s board gender diversity statute, Crest v. Alex Padilla, was a complaint filed in 2019 in California state court by three California taxpayers seeking to prevent implementation and enforcement of the law. Framed as a “taxpayer suit,” the litigation sought to enjoin Alex Padilla, the then-California Secretary of State (now U.S. Senator), from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law, SB 826, alleging that the law’s mandate is an unconstitutional gender-based quota and violates the California constitution. The court in that case has just denied each side’s motion for summary judgment after concluding that there were triable issues of material fact. The case will now be going to trial, which was initially set for October 25. However, on the court’s own motion, the trial was “trailed” to December 1. Stay tuned.
Petition filed for review of SEC approval of Nasdaq board diversity rule
It should hardly come as a surprise to anyone that the new Nasdaq board diversity rule (see this PubCo post) would be challenged in the courts. The rule was approved by the SEC on Friday, August 6. On Monday, August 9, the Alliance for Fair Board Recruitment filed a slim petition under Section 25(a) of the Exchange Act in 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. The petition itself is not particularly revealing, but it’s notable that the petitioner is also the most recent plaintiff challenging California’s two board diversity laws.
A little more on the Nasdaq Board Diversity Rule
On Friday, the SEC approved Nasdaq’s proposal for new listing rules regarding board diversity and disclosure, along with a proposal to provide free access to a board recruiting service. The new listing rules adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards in a matrix format. (See this PubCo post.) Nasdaq has now posted a three-page summary of its new board diversity rule, What Nasdaq-listed Companies Should Know.
SEC approves Nasdaq “comply-or-explain” proposal for board diversity
You probably remember that, late last year, Nasdaq filed with the SEC a 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 would adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. In March, after Nasdaq amended its proposal, and in June, the Division of Trading and Markets, pursuant to delegated authority, took actions that had the effect of postponing a decision on the proposal—until now. On Friday afternoon, the SEC approved the two proposals.
New challenge to California board diversity laws
There’s a new case challenging both of California’s board diversity laws. The case, , Alliance for Fair Board Recruitment v. Weber, which was filed in a California federal district court against the California Secretary of State, Dr. Shirley Weber, seeks declaratory relief that California’s board diversity statutes (SB 826 and AB 979) violate the Equal Protection Clause of the 14th Amendment and the internal affairs doctrine, and seeks to enjoin Weber from enforcing those statutes. The plaintiff, the Alliance for Fair Board Recruitment, is described as “a Texas non-profit membership association,” with members that include “persons who are seeking employment as corporate directors as well as shareholders of publicly traded companies headquartered in California and therefore subject to SB 826 and AB 979.” Will this case be the one to jettison these two statutes?
Commissioner Lee discusses board’s role in ESG oversight
On Monday, in a keynote address before the Society for Corporate Governance 2021 National Conference, SEC Commissioner Allison Herren Lee discussed the challenges boards face in oversight of ESG matters, including “climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy.” Shareholders, employees, customers and other stakeholders are now all looking to corporations to adopt policies that “support growth and address the environmental and social impacts these companies have.” Why is that? Because actions or inactions by our largest corporations can have a tremendous impact. According to Lee, a 2018 study showed that, of the top 100 revenue generators across the globe, only 29 were countries—the rest were corporations, that is, corporations “often operate on a level or higher economic footing than some of the largest governments in the world.”
New survey: diversity on Fortune 100 and Fortune 500 boards
Audit firm Deloitte and the Alliance for Board Diversity have just released the Missing Pieces Report: The Board Diversity Census of Women and Minorities on Fortune 500 Boards, a study examining the representation of women and racial/ethnic minorities (including Black, Asian/Pacific Islander and Hispanic persons) on public company boards among the Fortune 100 and Fortune 500 companies. The analysis of the Fortune 100 began in 2004 and the Fortune 500 in 2010, based on public filings reviewed through the end of June 2020. The Report finds that the rate of change has been quite slow, espcially for some demographic groups. It remains to be seen whether the social unrest roiling the U.S. body politic—which has brought systemic racial inequity and injustice, exacerbated by the pandemic, into sharp focus—together with actions to mandate or encourage board diversity, such as California’s AB 979 or, if approved, the Nasdaq board diversity proposal, will accelerate the rate of change evidenced in the Report.
Tackling the underrepresentation of women of color on boards
With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). In 2020, the California Partners Project, which was founded by California’s current First Lady, released a progress report on women’s representation on boards of California public companies, tracking the changes in gender diversity on California boards since enactment of the law. That same year, AB 979 was signed into law in California. That bill was designed to do for “underrepresented communities” on boards of directors what SB 826 did for board gender diversity. (See this PubCo post.) The CPP has just released a new report that not only updates its 2020 progress report on board gender diversity, but also provides data on women of color on California’s public company boards. The takeaway is that, while there has been tremendous progress in increasing the number of women on boards, nevertheless, much work remains “to tap all of our talent and achieve racial and cultural equity. Most women on California’s corporate boards are white, while women of color—especially Latinas—remain severely underrepresented.” In addition to new data, the report offers some strategies for overcoming these deficits in diversity.
What role should the exchanges play in encouraging board diversity?
Board diversity and how (and whether) to try to achieve it is a topic that has certainly appeared on a lot of corporate governance agendas in the last few years. Institutional investors have applied pressure on corporations, shareholders have submitted precatory proposals for shareholder votes, investment banks have insisted on diverse boards as preconditions for taking companies public, and California and a number of other states have adopted legislation, whether it be a board diversity mandate, a soft target or simply a disclosure requirement. Most recently, Nasdaq filed with the SEC a proposal for new listing rules regarding board diversity and disclosure, adopting a comply-or-explain approach. According to Nasdaq’s President and CEO, Adena Friedman, “Nasdaq’s purpose is to champion inclusive growth and prosperity to power stronger economies….Our goal with this proposal is to provide a transparent framework for?Nasdaq-listed companies to present their board composition and diversity philosophy effectively to all stakeholders; we believe this listing rule is one step in a broader journey to achieve inclusive representation across corporate America.”? Interestingly, however, the NYSE has not followed suit. In fact, in an interview on Bloomberg TV in December, NYSE President Stacey Cunningham said, when asked about the Nasdaq proposal, that it was not something that they were considering adopting at the NYSE: “When we use exchange listing standards to require things like diversity profiles or others, we’re defining the investable universe…. We just don’t think we should be using our listing standards because that forces our views on investors and prevents them from being able to make the choices that they want to make and that they are making.” In contrast to the SEC, whose remit is largely disclosure, the exchanges regularly impose corporate governance requirements. Should board diversity be one of them?
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