New York’s Disclosure Law and Other Laws and Regulatory Mandates Regarding Women on Corporate Boards

As we begin this new year and reflect on a number of notable changes from the year past, certainly diversity and inclusion comes to mind. Diversity on corporate boards has received much attention and should be an important issue to all companies. Now, it is a legally mandated focus for any for-profit corporation doing business in New York.

Recent studies have shown a significant increase in the number of women on corporate boards of New York’s largest publicly listed companies but there is still need for much greater representation.

On June 27, 2020, New York’s disclosure law: The Women on Corporate Boards Study Act (Section 408 of the Business Corporation Law, S4278), (the “Act”) became effective. Pursuant to the Act, the New York Department of State in collaboration with the Department of Taxation and Finance will conduct a study on the proportion of female directors on boards of both domestic and foreign companies authorized to do business in New York State.1

This law applies to all public and private for-profit business corporations which have been authorized to do business in New York State, not just publicly listed companies.2 In the Statement filed with the Department of State, each company must set forth the number of directors on its board and how many of those directors are women. The Department of State will publish the findings of the study on its website on February 1, 2022 and follow up comparative reports will be filed every four years thereafter.

Although the Act, does not prescribe specific penalties for non-compliance, a corporation’s biennial statement now cannot be filed without all questions being answered including the questions about board members and gender diversity. Failure to file the biennial statement can result in a $250 fine and could impact the company’s good standing certificate.

Impact for NY Companies

The Act presents several risks for New York entities. First, the legislation is broad in scope and applies to a significant swath of entities. As noted above, it applies to all for-profit New York corporations and all for-profit corporations authorized to do business in New York (private or public). Second, New York companies can face litigation risk from making (or failing to make) the disclosures mandated by the Act. Any time a company makes a disclosure to investors and the public, it risks liability if those disclosures contain material misstatements or omissions. In addition, a company could also face shareholder derivative suits alleging breach of fiduciary duties as a result of decisions made concerning board diversity or the lack thereof, or potential harm to their brand, now that they are required to make their composition known.

Companies doing business in New York can and should take proactive measures to protect themselves by: (1) carefully vetting disclosures in public filings, press statements, and D&O questionnaires regarding diversity and board composition; (2) reviewing the company’s approach to board diversity in order to be prepared to address the issue with shareholders and other constituents even before diversity becomes a mandate; and (3) examining the company’s pipeline and assessing what steps can be taken now, like training programs, hiring initiatives, unconscious bias analysis, among others, to make sure that diverse candidates are being recruited, retained and promoted within the company.

Other States’ Actions on Board Diversity

Other states have also enacted or are considering enacting legislation to address board diversity including California, Illinois, New Jersey, Pennsylvania, Michigan, Colorado, Hawaii, Massachusetts, Washington State, Ohio, and Maryland.

In 2018, California enacted a law (SB 826) requiring every publicly held domestic or foreign business whose principal office is in located in California to have at least one women director on its board by the end of 2019.3 In September 2020, California enacted AB 979, which requires publicly listed companies headquartered in California (including companies incorporated in Delaware with headquarters in California) to appoint at least one director from an underrepresented community to their board by the end of 2021 with additional underrepresented community directors to be added in following years depending on the number of directors on the company’s board (i.e. underrepresented community members include individuals who self-identify as “ Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native America, Native Hawaiian or Alaska Native” or “gay, lesbian, bisexual, or transgender”).4 Significant fines can be imposed for failure to comply (i.e. $100,000 for the first violation and $300,000 for each additional violation). There have been legal challenges to SB 826 and there are many questions regarding this recent CA legislation.

The Illinois law passed in 2019 requires companies as part of their annual reports to the Secretary of the State to provide information on board composition and their policies and procedures for promoting diversity for their board and executive officers. The Maryland law similarly requires corporations to include information on their board composition in their annual reports.

Efforts by the SEC, NASDAQ and Investment Firms to Promote Diversity on Boards

From every segment of the financial markets, from self-adopted corporate public policy commitments to external rating agencies that rank companies against their competitors based upon their diversity and inclusion efforts and other sustainability factors to regulators adopting formal rule amendments, board diversity can no longer be ignored.

Since 2017, a number of large institutional investment firms have pursued initiatives to increase gender diversity on corporate boards. These efforts have included advocating polices for increasing board diversity and campaigns against directors’ elections at firms with insufficient progress in having a gender diverse board. These efforts and shareholder advocacy have contributed to the increased participation of women in leading corporate roles.

In November 2020, Institutional Shareholder Services (ISS) proposed their proxy voting policies for companies in Russell 3000 or S&P 1500 index and will identify boards with no apparent racial diversity. Beginning with annual meetings after February 1, 2022, ISS will recommend a vote against or withhold from the chair of the nominating committee or other directors if the board has no apparent racially or ethnically diverse members. With regard to gender diversity, ISS will continue to recommend voting against nominating chairs or the directors of all male boards as its grace period has phased out for boards that committed to adding a female director within a year, unless the board included a female in the previous annual meeting and committed to adding a female director in the next year. For 2021, Glass Lewis will not only continue its policy of voting against nominating chairs with all male boards, it will note concerns with only one women on the board and recommend voting against chairs with less than two women on certain boards.

Market participants are insisting on gender and ethnic board diversity. In January 2020, Goldman Sachs announced at the World Economic Forum in Davos, Switzerland, that effective in July 2020, it would only underwrite IPOs in the United States and Europe of private companies that have at least one diverse board member with the required number of diverse directors increasing to two by 2021.

On August 26, 2020, the US Securities and Exchange Commission (SEC) adopted additional disclosure requirements on the human capital of public companies. Under this new rule, public companies must annually include, when reporting business, legal proceedings and other risk factor disclosures under Regulation S-K, a description of human capital resources, to the extent that it materially impacts a company in managing its business. The rule requires companies to identify the number of persons employed and any human capital measures or objectives, such as gender and ethnic diversity and inclusion goals or other measures that address the attraction, development, and retention of personnel. Since this rule, like the other changes the SEC has made to its disclosure requirements, using a principle-based approach, it does not define the term “human capital.” Thus, the measures and objectives that a company discloses will be entity – specific and can vary across sectors, businesses and workforce types. Although the rule may not be prescriptive or applicable to private companies, these disclosure rules, along with current market trends, undoubtedly will lead to an industry-wide expectation, across all sectors, that companies at least consider board composition and the need for gender and ethnic diversity.

In picking up where the SEC’s new disclosure requirement leaves off, on December 1, 2020, NASDAQ proposed a new listing rule which, if approved by the SEC, would require all 3,249 NASDAQ-listed companies to have or explain why they do not have, at least one woman and one diverse board member and disclose information about the diversity of their directors on an annual basis. Specifically, the NASDAQ rule would give large companies one year to partially comply by having at least one woman or diverse director in the first year and four years to meet the 2 diverse director requirement. Smaller companies can meet the requirement with two female directors. Failure to meet the requirement would require a company to issue a public explanation for its failure or face delisting from the exchange. The fate of NASDAQ’s proposed new rule lies with the SEC under the new administration.

In sum, with the SEC, NASDAQ and other market players adopting a data-driven approach to board diversity, both public and private companies, across all sectors, will have to, at least, consider whether their board composition and recruitment strategies measure up to industry standards and the practices employed by their competitors, as well as what is being demanded by their shareholders and their clients/customers.

Other National Efforts to Promote Board Diversity

Congress has addressed board diversity with the House’s passage of the Improving Corporate Governance Through Diversity Act of 2019 (H.R. 5084-116 Congress (2019-2020)) which requires public companies to disclose annually the gender, race, ethnicity and veteran status of the board and senior officers.5 It amends the Security Exchange Act of 1934 and requires companies to disclose the composition of their board, nominees and executive officers. Also, the bill would require the SEC to establish a diversity advisory group to study strategies for increasing board diversity. However, this legislation was not passed by the previous Senate. Senators introduced another bill, Improving Corporate Governance Through Diversity Act of 2019 (S. 360), which was referred to committee.6 Under the new administration, Congress may bring this or similar legislation to the forefront, for consideration.


Meaningful diversity can be a valuable asset to any company. Board diversity has been shown in studies to provide important corporate competitive advantages. Companies are encouraged to take a vigorous approach to addressing diversity on their boards and mitigating potential legal exposure for inaccurate disclosure and for lack of diversity.

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