New York State is taking a proactive approach to ensure more women have a seat at the proverbial table—in the boardroom. Effective June 27, 2020, all corporations incorporated in the State of New York, or otherwise authorized to do business in the state, must report the number of women who serve on their boards of directors. The Women on Corporate Boards Study Act (the “Act”) (S 4278/A 6330) requires the New York Department of State to, among other things, study the number of women directors and publish its findings on its website.
New York Biennial Statement Filing Requirements
Each domestic and foreign corporation authorized to do business in New York is required by Section 408 of the Business Corporation Law to file a Biennial Statement every two years with the New York Department of State. The Biennial Statement must set forth: (i) the name and business address of its chief executive officer, (ii) the street address of its principal executive office and (iii) the address to which the New York Secretary of State shall forward copies of process accepted on behalf of the corporation. With the enactment of the Act, Biennial Statements filed on or after June 27, 2020 must also include the total number of directors on the board and the number of women directors.
The Act does not expressly identify ramifications for noncompliance. However, a corporation that fails to file its Biennial Statement will be listed in the New York Department of State’s records as past due. Accordingly, any Certificate of Status or status letter obtained from the New York Department of State will reflect that the corporation is past due in the filing of its Biennial Statement, which may prevent the corporation from completing certain business transactions. Notably, filed Biennial Statements are public record.
New York Department of State Study and Report
The Act requires the New York Department of State, in collaboration with the Department of Taxation and Finance, to study the number of women directors who serve on each board of directors of domestic and foreign corporations authorized to do business in New York. Using the data from the Biennial Statements, the study will include, but not be limited to, the following:
- 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 Department of State must publish a report on the findings of each study and post the report on its website, with the first report due on or by February 1, 2022, and then every fourth year thereafter. It is unclear whether the published report will include information regarding each company individually or if the report will provide only aggregate information. However, as noted above, filed Biennial Statements are public record, which can be made available upon written request to the Department of State.
Setting an Example for Corporate Responsibility
The Act is just one of several initiatives keeping New York at the forefront of the fight for diversity and inclusion. In 2019, New York enacted new pay equity laws banning employers from asking prospective employees about their salary history and compensation (S 6549/A 5308) and requiring pay equity for protected classes for “substantially similar work” (S 5249B/A 8093). New York also boasts some of the strongest-in-the-nation sexual harassment policies (e.g., S 7507C/A 9507C and S S6577/A 8421). New York is setting a global example for corporate responsibility that is being emulated by other jurisdictions.
Legislative efforts to push corporations to increase diversity on corporate boards is trending across the country. For example,
- Maryland (SB 911) requires tax-exempt domestic nonstock corporations with operating budgets over $5,000,000 and domestic stock corporations with total sales over $5,000,000 to report the number of female board members and the total number of board members as part of their annual personal property tax filing.
- Illinois (HB 3394) requires a publicly held domestic or foreign corporation with a principal executive office located 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. A report of the annual information will be published and will include: (1) aggregate data on the demographic characteristics of the boards and executive officers of corporations that filed reports; (2) individualized ratings for each corporation; and (3) strategies for promoting diversity and inclusion among boards and corporate executive officers
- California (SB 826) requires each publicly held domestic or foreign corporation with principal executive offices located in California to have a minimum of one female board member by December 31, 2019. By the end of 2021, corporations with five or more directors on the board must include at least two female board members, and boards with six or more board seats must include at least three female board members. The legislation authorizes steep fines for violations, with a $100,000 fine for a first violation and $300,000 for subsequent violations.
- New Jersey (S 3469/A 4726) and Michigan (SB 115) introduced bills in 2019 similar to the California law; however, they have yet to advance any further.
Other countries are enacting national gender quota legislation for public company boards, with Norway and France requiring 40% representation, and Belgium requiring 30% representation. Other countries, such as Sweden, Finland and New Zealand, are pushing diversity efforts through self-regulation and/or corporate governance code recommendations.
The private sector is also embracing the importance of diversity to the bottom line. Earlier this year, Goldman Sachs announced it would no longer help companies go public unless there is at least one diverse board candidate, with a focus on women. Last year, BlackRock called for its portfolio companies to increase their board diversity, with an expectation of seeing at least two women directors on every board. State Street Global Advisors (SSGA) introduced its Fearless Girl campaign in 2017 rolling out global initiatives to increase board diversity. In particular, SSGA enhanced its voting guidelines to vote against the entire slate of board members on the nominating committee of any company not meeting its gender diversity criteria.
New York domestic and foreign corporations should be prepared to comply with the Act beginning in June this year. Corporations operating in other jurisdictions should be aware of their applicable diversity legal requirements as well as the private sector initiatives. A number of resources are available for those corporations seeking to increase their board diversity, including industry organizations and affinity groups, which maintain board banks and alert their members of openings. Please contact us for more information on the Women on Corporate Boards Study Act and board diversity initiatives in general.