Statement of the DCDC on recent California AB 979 ruling
The need for corporate America to embrace diversity in the Boardroom has never been greater.
Washington, DC April 8, 2022. Given that challenges to board diversity are entrenched in corporate governance practices across the country, members of the Diverse Corporate Directors Coalition (DCDC) are extremely disappointed by a California Superior Court’s summary judgment against AB 979. However, they remain optimistic that change in the boardroom is possible and urges companies, investors, and regulators to accelerate their efforts to increase diversity, equity, and inclusion (DE&I) at the very top of organizations.
DCDC coalition members – all leading associations that support diverse corporate directors – have previously outlined a holistic plan to help corporate America increase diverse representation on their boards, which becomes even more relevant with this ruling. The coalition includes Ascend Pinnacle, the Black Corporate Directors Conference (BCDC), the Latino Corporate Directors Association (LCDA), Out Leadership’s OutQUORUM, and the WomenCorporateDirectors Foundation (WCD).
On April 1, 2022, a California Superior Court ruled that AB 979 violated the State’s constitutional equal protection clause. Enacted in Sept. 2020, AB 979 requires that California-headquartered public corporations include directors from underrepresented communities on their boards. The judge granted a summary judgment to the plaintiff.
AB 979 mandates the inclusion of board directors from underrepresented communities, including African Americans, Asians, Latinx, Native Americans, and LGBTQ+ people. The law was conceived as a response to decades of inaction on Board diversity. Historically, both executive leadership teams and governing boards have been devoid of women and other diverse perspectives. Recently, female and minority representation has increased marginally but representation remains abysmal, and the pace of change is slow.
The issue of Board representation remains intact
The need for corporate America to embrace diversity in the Boardroom has never been greater. Gender parity has been far from achieved, with women accounting for only slightly more than a quarter of corporate directors in Fortune 500 boardrooms. Women of color, about 18% of the US population, are severely underrepresented, holding just 4.6% of board seats; Latina women, 9% of the US population, hold only about 1%. Out LGBTQ+ people hold about 0.4% of corporate board seats, while it is estimated they represent 7% of the US population. Minority men gained no substantive increase in their rate of representation on Fortune 500 company boards in the past decade.
Board diversity is about good governance
The first step to improve board diversity is to acknowledge that when governance structures are diverse, everyone wins. The business and economic case has never been so well articulated. There is compelling evidence that inclusive environments featuring various perspectives provide tangible business benefits and affect firm performance.
A recent KPMG Board Leadership Center’s report noted “Boards are looking to change their composition out of strategic necessity and remaining competitive. What that tells us is different skills are going to be needed going forward”. KPMG’s report found that 42 per cent of Directors surveyed are concerned about boardroom blind spots and missed opportunities created by a group of directors lacking in diversity.
A plan to accelerate the pace of progress
In 2020, DCDC outlined a holistic action plan to help companies to create meaningful progress in their boardrooms. Success will require companies, regulators, and investors to work together toward this shared goal. [To learn more, visit this link to the Call to Action for Equity and Inclusion in the Boardroom].
Regulators, in particular the Securities Exchange Commission (SEC), should move forward with requiring transparent disclosure of board composition to shareholders and refining the definition of diversity for regulated entities. Responsibility also falls to the corporate boards themselves, which can move the dial by shifting the way they identify and select new board members. Investors should insist that corporate America institute the measures and provide the disclosures AB 979 required.
The AB 979 judgment is a setback in a longer journey toward more efficient and inclusive corporate boards. Now is the time for companies to demonstrate their commitment to diversity, equity, and inclusion by accepting accountability and taking positive action. A renewed effort by regulators, shareholders and boards will enable companies to move forward and accomplish a meaningful evolution that supports business performance. The DCDC members stand ready to accompany these actors in their efforts. DCDC organizations represent ample diverse talent with the experience and expertise required by corporate boards. Our organizations stand ready to support companies seeking diverse director candidates for the boardroom.
DCDC MEMBER GROUPS AND REPRESENTATIVES
Ascend Pinnacle – Pan-Asian Directors, Jeannie Diefenderfer,
Black Corporate Directors Conference (BCDC), John W. Rogers, Jr
Latino Corporate Directors Association (LCDA), Esther Aguilera
Out Leadership’s OutQUORUM – LGBT+ Directors, Matt Fust
WomenCorporateDirectors Foundation (WCD), Jennifer Reynolds
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