House Hearing on Proposed Diversity, Equity, and Inclusion-related Legislation

Ballard Spahr LLP
Contact

Ballard Spahr LLP

On February 25, 2021, the House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets held a hearing entitled, “Climate Change and Social Responsibility: Helping Corporate Boards and Investors Make Decisions for a Sustainable World.”  The hearing invited panelists, including James Andrus, an investment manager for the California Public Employees’ Retirement System (CalPERS), to discuss a variety of topics, including environmental, social, and governance (ESG) disclosures involving diversity, equity, and inclusion (DEI) metrics, as well as corporate social accountability.

There are two proposed pieces of legislation up for consideration by the committee that intersect with labor and employment issues:  (1) the “Greater Accountability in Pay Act,” requiring public companies to increase pay transparency regarding executive raises and as compared to employee raises, and (2) the “Improving Corporate Governance through Diversity Act of 2021,” requiring public companies to disclose diversity metrics of their boards, as well as their plans to promote diversity, and which would require the SEC to establish a Diversity Advisory Group.  The first bill did not get much more than a passing mention.  The second, however, featured more prominently and was discussed in detail by Mr. Andrus.

In his opening remarks, Mr. Andrus discussed the lack of diversity among boards in U.S. companies, indicating that third party analyses found 70% of Nasdaq-listed companies lacked a woman or racially diverse member on their board.  He cited the World Economic Forum’s 2020 Global Gender Gap Report, which placed the U.S. 53rd in the world for board gender diversity.  He also pointed to the Office of Illinois State Treasurer’s white paper entitled “The Investment Case for Board Diversity” as illustrating the value of board diversity for investors.

He spoke highly of the California law, AB 279, enacted on September 30, 2020, which requires minimum representation by minority individuals on corporate boards of public companies headquartered in the state, including a minimum of one minority director by the end of 2021, with higher thresholds for larger companies by the end of 2022.  This law works hand in hand with California’s 2018 SB 826, which required a similar minimum for female representation on boards.  Noncompliance with either law can result in significant fines.  Mr. Andrus also praised the December 2020 proposed Nasdaq disclosure requirements rule (see our previous alert here), which would require listed companies to disclose the racial, LGBTQ+ status, and gender makeup of their boards of directors and have a minimum number of diverse directors or explain why they could not—or elected not to—achieve the established targets.

Mr. Andrus promoted the bill as a way to close the information gap and ensure that the talent of the current population was reflected in the boards of powerful companies.  When asked whether the business case for board diversity ought to result in the free market driving such change—i.e. if it is good for the business, won’t the business diversify its board without being required to do so—Mr. Andrus replied the requirements were necessary because the process would otherwise be too slow and at the whim of individual executives.  He similarly parried a comment that term limits for board members would serve similar purposes to diversify—essentially this alone was too little and too slow.  If nothing else, this hearing underscores the importance of DEI workplace issues in the current political climate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.