Time to Diversify Your Corporate Board – It’s the Law
Twenty-Five Percent Threshold
On March 27, 2020, Governor Inslee signed Senate Bill 6037 into law, effective on June 11, 2020. Pursuant to Senate Bill 6037, a new section will be added to RCW 23B.08 (the Washington Business Corporation Act, “WBCA”), requiring all public companies in Washington to diversify their boards of directors by January 1, 2022. Following California, Washington will be only the second state in the country to require gender diversity in corporate management.
Under the new law, for 270 days of the fiscal year prior to the annual meeting of its shareholders, twenty-five percent (25%) of a company’s board of directors must comprise of individuals who self-identify as women. This means that companies must achieve diverse boards within the next year (by April 6, 2021 at the latest) to meet the deadline of January 1, 2022.
Diversity Discussion and Analysis Requirement
Under the new law, if a public company does not have a gender-diverse board of directors, then the company is required to hold an internal diversity discussion and analysis. This diversity discussion and analysis must include information regarding the company’s approach to developing and maintaining diversity on its board of directors. At minimum, this discussion and analysis should include:
- How the company considered the representation of any diverse groups in identifying and nominating candidates for election as directors;
- Any policy for identifying and nominating members of any diverse groups for election as directors; and
- Management succession mechanisms, such as term limits and mandatory retirement age policies for its directors.
If the company does not discuss any of the above considerations, then the company should provide an explanation of why not. For purposes of discussion, the company must address internal diversity more broadly than just inclusion of women, including racial minorities and historically underrepresented groups.
The discussion and analysis requirement in lieu of a gender-diverse board may be satisfied by the company: (1) posting the required information on its website or electronic network, or (2) including the required information in its proxy or information statement filed with the U.S. Securities Exchange Commission (“SEC”).
If a company fails to comply with the new law, a shareholder entitled to vote in the election of directors may seek a court order to compel the company to furnish the required information.
The new law does not apply to public companies that:
- Do not have outstanding shares of any class or series listed on a U.S. national securities exchange;
- Qualify as “emerging growth companies” or a “smaller reporting companies”, as defined by the SEC. See 17 C.F.R. Sec. 240.12b-2;
- Are majority owned (>50%) by a person or group of persons;
- Authorize elections of its directors by one or more separate voting groups pursuant to its articles of incorporation; or
- Are not required by the WBCA or any national securities exchange to hold an annual meeting of its shareholders.
For more information on the new law, please don’t hesitate to contact any of the attorneys in Helsell Fetterman’s Business Law Group.