Perkins Coie Lawyers Survey State Mandates on Board Diversity
Eight states across the U.S. have taken legislative action aimed at increasing diversity on company boards. Even before states like California enacted their mandates, industry pressure from institutional investors like State Street and BlackRock as well as proxy advisory firms had advanced voting policies encouraging board diversity. Lawyers from Perkins Coie review state actions and the legal challenges mounted against them. According to the lawyers, state legislatures have taken three approaches in their actions: (1) statutes mandating gender diversity on corporate boards; (2) laws mandating disclosure of board diversity; and (3) resolutions advising corporations to increase diversity on their boards. The approaches have been challenged in courts on a number of grounds. The California Chamber of Commerce argued that the state’s diversity mandate would violate the equal protection provisions of both the U.S. and California Constitutions by creating a gender classification that could result in reverse discrimination against males. Other opponents also argued that the bill, by exclusively promoting the representation of women, undermined broader efforts to diversify corporate boards ethnically and racially. The Perkins Coie lawyers note that the legal challenges bring key issues to mind for future mandates. “We suggest that they carefully consider the pros and cons of the California and Washington models.” They note that drafters may wish to: 1. Avoid hard quotas with numbers in favor of minimum percentages; 2. Favor “comply or explain”, a model successfully used for years by the SEC over monetary penalties; 3. Clarify that the statute does not change the fundamental corporate law board duties of directors; and 4. Specify that noncompliance will not impact the validity of corporate actions.