February 15, 2019

Diversity: Proposed Legislation Would Mandate D&O Disclosure

Last week, Corp Fin issued new CDIs addressing board diversity disclosure issues.  Now, Rep. Greg Meeks (D-NY) & Sen. Bob Menendez (D-NJ) have introduced legislation that would require companies to disclose self-identified demographic info about their board & executive officers.  Here’s an excerpt from a recent Weil blog summarizing the proposed legislation:

The bill, which garnered the support of the Council for Institutional Investors and the U.S. Chamber of Commerce, would require public companies to disclose annually in their proxy statements data on the racial, ethnic, and gender composition, as well as veteran status, of its board of directors, director nominees and executive officers based on voluntary self-identification. Moreover, disclosure regarding the adoption of any board policy, plan or strategy to promote racial, ethnic, and gender diversity would be required.

The bill would also require the SEC’s Office of Minority and Women Inclusion to publish best practices for corporate reporting on diversity.  Rep. Meeks introduced the same legislation during the last Congress, but it went nowhere. With Democrats controlling the House & support from the CII &  the  U.S. Chamber of Commerce, perhaps it will get more traction this time around.

Board Gender Diversity: Will Supply Meet Demand?

Recently, Liz wrote on “The Mentor Blog” that assuming current board composition, California’s board gender diversity statute will require Golden State companies to find over 1000 women directors by the end of 2021.

A recent study on the market’s reaction to the statute suggests that there is some concern among investors that there won’t be enough qualified female director candidates to meet that demand – and this concern has implications for companies located in & outside of California. Here’s an excerpt from the study’s abstract:

On September 30, 2018, California became the first U.S. state to introduce a mandatory board gender quota applicable to all firms headquartered in the state. Using a large sample of publicly-listed firms headquartered in the U.S., we find that the introduction of the quota is associated with significantly negative announcement returns to California-headquartered firms. Consistent with the quota imposing frictions, this effect is larger for firms requiring more female directors to comply with the quota.

According to the study, California headquartered companies had a 0.47% lower return on the first day after the quota announcement than a control group of matched on size and industry. It says that this effect is larger for companies needing to add more female directors to comply with the quota and for those with low corporate governance standards – results that are consistent with the theory that smaller companies and those with poor governance could have a hard time recruiting qualified women candidates.

The study also identified negative “spillover” effects on returns for companies headquartered outside California. These were concentrated among companies in industries where California-based companies need to recruit a lot of female directors to comply with the law. Companies headquartered in “blue” states were also negatively affected – perhaps due to perceptions that they were more likely to become subject to a board gender quota than those based in “red” states.

Europe’s experience with a female quota requirement for boards suggests that companies may want to expand their search to some less traditional sectors – such as women working in leadership positions in government, non-profits & academia.

January-February Issue of “The Corporate Counsel”

We recently mailed the January-February issue of “The Corporate Counsel” print newsletter (try a no-risk trial). The topics include:

– Tone Deaf at the Top: Now It’s Your Problem When an Executive Messes Up

1. Is There an Insider Trading Problem?
2. An Unusually-Timed Form 4 Attracts Attention
3. Beware of the Potential for Shareholder Derivative Suits
4. There Are Disclosure Issues Everywhere
5. Sanctions & Remedial Steps

– Reg A Gets an Upgrade: Opening the Exemption to Reporting Issuers
– Annual Season Items
– Non-GAAP: “Equal or Greater” Prominence Applies to Your Earnings Release
– Form S-3 is Sometimes a “Come as You Were” Party

John Jenkins