Board Diversity Proposals

California Governor Jerry Brown (D) recently signed into law (SB 826) which requires any public company with shares listed on a major U.S. stock exchange that has its principal executive offices in California to have at least one woman on its board by Dec. 31, 2019. By year-end 2021, such companies with five directors would be required to have two women on the board, and companies with six or more directors would be required to have three women on the board.  Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.

In 2017, the SEC’s Advisory Committee on Small and Emerging Companies (“Advisory Committee”) provided a recommendation to the SEC regarding corporate board diversity. The Advisory Committee’s recommendation encouraged the SEC to “amend Item 407(c)(2) of Regulation S-K to require issuers to describe, in addition to their policy with respect to diversity, if any, the extent to which their boards are diverse.”  Several Members of Congress have encouraged SEC Chairman Jay Clayton to consider efforts to promote greater transparency regarding certain corporate boards.  In March of 2017, Representative Carolyn Maloney (D-NY) reintroduced a bill on board gender diversity that would require the SEC to establish a group to study and make recommendations on ways to increase gender diversity on boards. Companies must also disclose the gender composition of their boards.

The California Public Employees' Retirement System has sent letters to 504 companies in the Russell 3000 Index regarding diversity on their board of directors. The letters outline the growing evidence that board diversity has a positive economic impact on business performance. CalPERS requested that each company develop and disclose its corporate board diversity policy and implementation plan to address the lack of diversity.