April 30, 2021
The House Financial Services Committee passed Rep. Gregory Meek’s (D-NY) Improving Corporate Governance through Diversity Act (H.R. 1277), which would require public companies to annually disclose the voluntarily self-identified gender, race, ethnicity, and veteran status of their board directors and executive officers.
The bill, approved by a bipartisan voice vote, is supported by several trade associations, including the Retail Industry Leaders Association and the U.S. Chamber of Commerce. In 2019, the bill was approved by the same committee with broad, bipartisan support and was subsequently passed by a vote of 281 to 135 with the support of 55 Republican members.
Senate prospects uncertain: As with the previous bill, Sen. Bob Menendez (D-NJ) has introduced a companion bill pending in the Senate Banking Committee. With Democrats now in control, the bill is likely to be considered and passed by the committee. If it enjoys bipartisan support coming out of committee, it may not face additional hurdles such as a filibuster, but that is not entirely certain. NASDAQ’s recent listing standard proposal to require listed companies to include diverse board directors or disclose their rationale for not doing so met considerable criticism from Republican senators, including Banking Committee Ranking Member Pat Toomey (R-PA). The Board Diversity Act, however, calls solely for increased disclosure and does not mandate inclusion of diverse directors.
Outlook: Small steps towards improving board diversity have been achieved (for example, all S&P 500 companies now have at least one female director). However, according to the Conference Board’s “Corporate Board Practices Study,” women hold only 18.5% of Russell 3000 directorships (13% of the Russell 3000 has an all-male board) and just under a quarter of S&P 500 directorships. Meanwhile, only 59 companies in the S&P 500 currently disclose the race and ethnicity of individual directors. Approximately 80% of those disclosed are white, compared to 60% of the country’s population based on Census figures. As shareholders increase pressure on companies to diversify boards quickly, certain states, such as California and Illinois, have begun to pass their own mandates on inclusion.