MODEL BILLS
Corporate Diverse Representation Act
Summary: Corporate boards are generally dominated by white males. The Corporate Diverse Representation Act requires publicly held companies with their principal executive office located in the state to have both female representation and representation from a racial, ethnic or LGBT minority.
Background: A number of states have considered legislation to encourage more diversity on corporate boards. California and Washington have enacted mandates. Other states like Illinois and Maryland have enacted board diversity reporting requirements, while others still have mandated board diversity studies such as New York’s “Women on Corporate Boards Study” law.
Model based on California AB 979 (2020) which is an extension of CA SB 826 (2018)
SECTION 1. SHORT TITLE
This Act shall be called the “Corporate Diverse Representation Act.”
SECTION 2. FINDINGS AND PURPOSE
(A) FINDINGS—The legislature finds that:
1) Corporations are created and regulated by the laws of the state. In exchange for a legal framework that limits liability and alters taxation, states require corporations to comply with rules that benefit the greater economy and the broader society.
2) Corporate boards of directors govern their companies. Most of these boards are currently dominated by white males.
3) Studies have found that representation by women and minorities on boards of directors tend to financially improve those companies and act as a counterweight against discrimination within the companies.
(B) PURPOSE—This law is enacted to improve corporate governance.
SECTION 3. DIVERSITY ON CORPORATE BOARDS OF DIRECTORS
After section XXX, the following new section XXX shall be inserted:
(A) DEFINITIONS—In this section:
1) “Director from an underrepresented community” means an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.
2) “Female” means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.
3) “Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange.
(B) DIVERSITY ON CORPORATE BOARDS
1) No later than the close of the [2022] calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in the state shall have a minimum of one female director and one director from an underrepresented community on its board. A corporation may increase the number of directors on its board to comply with this section.
2) No later than the close of the [2023] calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in the state shall comply with the following:
a) If its number of directors is seven or more, the corporation shall have a minimum of three female directors and three directors from an underrepresented community on its board.
b) If its number of directors is five or six, the corporation shall have a minimum of two female directors and two directors from an underrepresented community on its board.
c) If its number of directors is four or fewer, the corporation shall have a minimum of one female director and one director from an underrepresented community on its board.
d) A director may count as both female and from an underrepresented community.
(C) REPORTING AND ENFORCEMENT
1) No later than July 1, [2022], the Secretary of State shall publish a report on its Internet website documenting the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in the state and have at least one female director as well as the number that have at least one director from an underrepresented community.
2) No later than July 1, [2023,] and annually thereafter, the Secretary of State shall publish a report on its Internet website regarding:
a) The number of corporations subject to this section that were in compliance with the requirements of this section during the preceding calendar year.
b) The number of publicly held corporations that moved their United States headquarters to the state from another state or out of the into another state during the preceding calendar year.
c) The number of publicly held corporations that were subject to this section during the preceding year but are no longer publicly traded.
3) The Secretary of State shall adopt regulations to implement this section, including the imposition of fines for violations of this section as follows:
a) For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000).
b) For a first violation, the amount of one hundred thousand dollars ($100,000).
c) For a second or subsequent violation, the amount of three hundred thousand dollars ($300,000).
d) Fines collected pursuant to this section shall be available for use by the Secretary of State to offset the cost of administering this section.
SECTION 4. EFFECTIVE DATE
This law shall become effective on July 1, 202X.