United States: Continued Focus On Gender Diversity In The Board Room

Issues related to gender have been front and center in 2018 and have permeated American life. On the red carpet, we saw Natalie Portman pointedly noting "And here are the all-male nominees..." when announcing candidates for "Best Director" at the 2018 Golden Globes. In the halls of Congress, we witnessed historic participation and success by women in the 2018 mid-term elections, as more women won seats in the U.S. House of Representatives than ever before. On Wall Street, we watched the "Fearless Girl" statue, placed by State Street Global Advisors in front of the iconic "Charging Bull" monument to kick off its gender diversity initiative, become a tourist draw and internet meme in her own right. And, of course, we've seen the "#MeToo" movement cause individuals and employers across all fields to rethink behavior and policies in the workplace (see, for example, "Managing Sexual Harassment Risks: Top 10 Mistakes Employers are Making in the #MeToo Era").

The focus on gender issues and gender diversity applies to corporate governance, too. The following are just some of the public and private initiatives to drive increased attention to gender diversity in the board room.

  • Proxy Advisory Firms
    • Glass Lewis has stated that, beginning in 2019, it will begin recommending votes against directors at Russell 3000 companies with all male boards.

    • Institutional Shareholder Services, or ISS, has announced a new voting policy, beginning in 2020, where it may recommend voting against a Russell 3000 or an S&P 1500 company's nominating committee chair (or, on a case-by-case basis, the election of other directors who are responsible for the board nomination process) where the board has no female directors.
  • Institutional Investors
    • State Street Global Advisors has announced that, beginning in 2020, it will vote against an entire nominating committee if a company does not have at least one woman on its board and has not engaged in a successful dialogue with State Street on gender diversity for three consecutive years.
    • The California State Teachers' Retirement System (CalPERS) has stated it will consider withholding votes at companies without women on their boards.
    • BlackRock, Inc. has announced that it expects companies to have at least two women on their boards.
  • Legislative Initiatives

    • California has become the first state to require public companies to have a minimum number of women on boards. SB 826, signed into law by Governor Jerry Brown on October 1, 2018, requires that all publicly held companies headquartered in California have at least one female director by December 31, 2019 and, by December 31, 2021, requires that companies with more than five directors must have at least two female directors and companies with six or more directors must have at least three female directors. The law will almost certainly face many legal, including constitutional, challenges. Even Governor Brown himself has acknowledged that "serious legal concerns" have been raised about the statute and that its flaws "may be fatal to its ultimate implementation." Regardless of the law's fate in the courts, however, its passage is a concrete expression of California's interest in gender diversity in the board room.
    • In March 2017, Representative Carolyn B. Maloney (D-NY) re-introduced H.R.1611 – Gender Diversity in Corporate Leadership Act of 2017, which has been referred to, and remains before, the House Committee on Financial Services. If enacted into law, the Act would amend the Securities Exchange Act to require public reporting companies to include in certain filings with the Securities and Exchange Commission, disclosures regarding the gender composition of their boards and director nominees. The Act would also establish a Gender Diversity Advisory Group to study strategies for increasing gender diversity on boards of directors of public companies. Again, regardless of whether this bill makes it out of committee, its introduction indicates legislative interest in the topic of board room gender diversity.

We believe that a well-functioning and properly experienced board is critical to a company's success. Relatedly, we believe that board composition and succession planning should be a key pillar of any company's strategic plan and should be assessed on an annual basis. Given the widespread focus on gender generally, and in the board room, in particular, it is prudent for companies to consider gender, among other factors, as part of their standard board assessment and planning processes. Investors, legislators and other corporate constituencies are making the issue a priority, so companies should consider doing so, too.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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