Is Requiring Board Diversity The Next Trend In Regulation By Lawmakers?

In August, the governor of Illinois signed into law Public Act 101-0589, a measure to increase the diversity of corporate boards. The law went into effect immediately.

The law requires that publicly held domestic and foreign corporations with principal executive offices in Illinois report on the diversity of their board of directors.

Corporations must provide the following information annually to the Illinois Secretary of State:
 

  1. The specific qualifications, skills, and experience that the corporation considers for its board of directors, board nominees, and executive officers;
  2. The self-identified gender of each member of its board of directors;
  3. Whether each member of its board self-identifies as a minority person and, if so, of what race or ethnicity;
  4. The corporation's process for identifying and evaluating nominees for the board, including whether and how the corporation considers demographic diversity;
  5. The corporation's process for identifying and appointing executive officers, including whether and how the corporation considers demographic diversity; and
  6. The corporation's policies and practices for promoting diversity, equity, and inclusion among its board and executive officers.

The University of Illinois will publish an online report containing aggregate data on the demographic characteristics of boards and executive officers; individualized ratings for each corporation; and strategies for promoting diversity and inclusion among boards and corporate executive officers.

Patrick J. Rocks and Kathryn Montgomery Moran "New Illinois Law Requires Corporations to Report Diversity on Corporate Boards" lexology.com (Aug. 29, 2019).

Commentary

Organizations should be aware of the growth in legislation requiring or encouraging them to make their board of directors more diverse.

In addition to the new law in Illinois, other states have either enacted board diversity legislation or are considering it. Massachusetts and Pennsylvania have legislation, similar to the law in Illinois, that encourages publicly traded corporations to include more women on their boards.

California has passed the most requirements so far. If your publicly traded company is based in California, you must have at least one woman on your board of directors by the end of 2019, and two or three female directors by the end of 2021, depending on the size of your board.

Even if your organization is not located in a state with board diversity legislation, audit the composition of your board and consider diversifying measures.

For one, the Securities and Exchange Commission (SEC) and Congress have pushed for board diversity, meaning we could see nationwide legislation requiring greater diversity on boards in the future.

Although most legislation has focused on gender diversity, it is important to also consider racial, cultural, and social diversity for optimal performance. Even considering individuals with different professional backgrounds can help expand your board's perspective.

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