The board’s nominating committee should note two recent developments regarding board diversity that arise (significantly) from legislative and regulatory sources.
The first development is the progress of California SB 826, which, if enacted, would require public companies headquartered in the state to maintain a prescribed level of gender diversity. The bill was approved by the state legislature and requires the final approval of the state senate before going to the governor for signature. The bill provides for an escalating level of women on the board, with at least one woman member by December 31, 2019, and by December 31, 2021, at least two women (for boards with five or fewer directors) and three women (for boards with six or more directors). Penalties are applicable for non-compliance.
The second development is the New York City Pension funds’ August 2018 release of a compendium of so-called “best practices” in board matrices included within the 2018 proxy statements of US public companies. The disclosures contained in the compendium are intended as guides for explaining how company directors are uniquely qualified for specific board service, and how the board has achieved racial and ethnic diversity. The compendium was developed as part of the New York City Comptroller’s Boardroom Accountability Project 2.0 initiative, which is focused in part on supporting the appointment of women and persons of color as corporate directors.
These two developments are notable in the broader national movement towards board diversity. The enactment of SB 826 could trigger similar legislative initiatives in other states. The compendium could be a useful reference to nominating committees in their application of diversity factors in the nominating process.