Despite employment laws prohibiting discrimination based upon gender, race, and other protected classes, there remains a lack of representation of women and other marginalized groups on corporate and public boards in New Jersey and elsewhere. To address these disparities, a number of states, including New Jersey, have proposed or enacted laws that are geared toward creating parity and diversity through a more balanced representation of the population on such boards. These laws range from requiring board diversity, encouraging board diversity, or requiring corporations to disclose board diversity information.
Although efforts to increase diversity have occurred, women and other marginalized groups continue to be underrepresented. For example, a report released by the Executive Women of New Jersey entitled “A Seat at the Table: Celebrating Women & Board Leadership” shows that:
• The total number of board seats held by women in the New Jersey companies reviewed increased somewhat (from 14% to 18% from 2013 to 2019) and the percentage of companies with no women on their boards declined by almost half (from 30% to 16%).
• The board seats held by women in NJ Fortune 500 companies increased from 19% to 26% while the NJ Fortune 500 companies with 3 or more women board members increased from 37% to 65%.
• Between 2010 and 2020, while women’s representation on boards of S&P 500 companies more than doubled (from 21% to 47%), the representation in director positions of individuals of African-American, Hispanic, and Asian backgrounds increased by only 10 points, from 12% to 22%, showing a clear gap in representation despite the fact that these racial/ethnic groups make up 38% of the US population.
• A 2021 study by BoardProspects, found that, although African Americans are 13% of the population, they only hold 5% of the approximately 27,000 seats among companies in the Russell 3000. Approximately 60% of these companies have no Black board members at all.
• Although Hispanics comprise 18% of the US population, they hold only 3.2% of the 7,602 board seats among Fortune 1000 companies. 73% of these companies have no Latinx directors at all.
To address these disparities, a number of states have proposed or enacted laws that either require board diversity, encourage board diversity, or require corporations to disclose board diversity information. California initiated the trend by passing a law in 2018 that required all public companies headquartered in the state to have at least one female board member by the end of 2019, with increases in subsequent years. 2020 amendments to the law require California corporations to have at least one board member from an underrepresented community in place by the end of 2020 and for larger boards to have two to three by the end of 2022.
New Jersey legislators are likewise attempting to tackle this issue as a number of laws have been proposed in the current and recent legislative sessions. Three important legislative bills were introduced on January 11, 2022.
NJ Bill A1465, requiring racial and gender diversity in membership of certain boards of directors of public corporations, was introduced in the Assembly and referred to the Assembly Financial Institutions and Insurance Committee. Specifically, the proposed bill provides that a publicly held domestic or foreign corporation whose principal executive office is located in New Jersey must have a board of directors that reflects the racial and gender diversity of New Jersey. A corporation that fails to have its board reflect the racial and gender diversity of New Jersey will be subject to a civil penalty of $100,000 for a first violation and $300,000 for each subsequent violation.
NJ Bill S241, requiring certain corporations to appoint women to boards of directors, was introduced in the Senate and referred to the Senate Commerce Committee. Specifically, a publicly held domestic or foreign corporation whose principal executive office is located in New Jersey must have at least one female director on its board. A corporation may increase the number of directors on its board to comply with this requirement. If passed, the bill will mandate the following requirements:
• A corporation with six or more directors shall have a minimum of three female directors;
• A corporation with five directors shall have a minimum of two female directors; or
• A corporation with four or fewer directors shall have a minimum of one female director.
To determine compliance with this law, covered corporations will need to file with the Secretary of State, on an annual basis, a list of all directors and each director’s term of service, and identify how many directors are female. For each director seat required to be held by a female that is not held by a female during at least a portion of a calendar year, a corporation shall be subject to a civil penalty of $100,000 for a first violation and $300,000 for each subsequent violation.
Such gender parity legislation is not just aimed at corporate boards, but public boards as well. NJ Bill A943, requiring gender balance in the membership of certain boards and commissions established by statute, was introduced and referred to the Assembly Women and Children Committee. The bill provides that any appointive State board, commission, task force, or any other multi-member body or entity (collectively, “State appointed body”) established by a statute enacted before, on, or after the effective date of the law must be gender balanced unless otherwise provided by law or gender balancing conflicts with the particular circumstances or requirements of the statute establishing the State appointed body.
To further promote diversity, New Jersey already enacted a law in January 2022 establishing a database to record the gender and race of individuals appointed to the State’s boards and commissions and a separate one for elected officials. [Insert link to other KSB Law post]
In addition to New Jersey and California, similar measures encouraging board diversity have been proposed or enacted in Connecticut, Hawaii, Maryland, Massachusetts, New York, Ohio, Oregon, and Pennsylvania. There is also a push for legislation on the federal level. If passed, House Bill H.R.1277, the Improving Corporate Governance Through Diversity Act, will require certain issuers of securities to disclose the racial, ethnic, and gender composition of their boards of directors and executive officers, as well as the status of any of those directors and officers as veterans. It also requires the disclosure of any plans to promote racial, ethnic, and gender diversity among these groups. Similarly, proposed Senate Bill S3367, the Diversity in Corporate Leadership Act of 2020, will require companies to disclose information related to the racial, gender, ethnic makeup and veteran status of corporate boards and senior management.
With these new requirements on the horizon to eliminate representation disparities, organizations should consider proactive efforts to diversify at all levels, including their top leadership positions.
This summary is for informational purposes only and is not intended to constitute legal advice. This information should not be reused without permission.