Pursuant to the recently-amended Washington Business Corporation Act (WBCA), effective June 11, 2020, corporations subject to the WBCA that are public companies1 will be required to either have a "gender-diverse board" by January 1, 2022 or comply with new board diversity disclosure requirements. The law considers a board to be gender diverse if, for at least 270 days of the fiscal year preceding a public company's annual meeting of shareholders, the board is comprised of at least 25% of individuals who self-identify as women.
If a public company's board is not sufficiently diverse by January 1, 2022, it must disclose in its annual proxy statement to shareholders or post on the company's primary website a "board diversity discussion and analysis" that includes information regarding the company's approach to developing and maintaining board diversity. The board diversity discussion and analysis must include, among other things, a discussion of:
- how the board (or an appropriate committee) considered the representation of diverse groups when identifying and nominating board candidates, or the reasons that diversity was not considered;
- any policies adopted to identify and nominate members of any diverse groups as board candidates, or the reasons for not adopting such a policy; and
- mechanisms to refresh the board, such as term limits or mandatory retirement of board members.
A public company will be exempt from the new board diversity requirements if: (1) it is an emerging growth company or a smaller reporting company, (2) more than 50 percent of the shares representing the voting power of the company are held by one person or group, (3) the company's articles of incorporation authorize the election of all or a specific number of directors by one or more separate voting groups, or (4) the WBCA or federal law does not require the company to hold an annual shareholders meeting.
If a public company fails to provide a diversity discussion and analysis in accordance with the WBCA, any voting shareholder may seek a superior court order requiring the company to provide the information to shareholders.
Washington's bill follows similar legislation passed in California in 2018 requiring each publicly-traded company with its principal executive offices located in California to have at least one woman on its board of directors by the end of 2019. In March 2020, the California Secretary of State reported on the status of corporate compliance with California's board diversity statute. Of the 625 publicly traded corporations that identified principal executive offices in California in their 2019 Form 10-Ks, 330 have filed the required board diversity disclosure. Of those 330, 282 companies reported that they were in compliance with California's board gender diversity mandate.
A number of states, including Hawaii, Massachusetts, Michigan, and New Jersey, have considered legislation similar to California's legislation. Other states, like Illinois and Maryland, have enacted board diversity reporting requirements, while others have mandated board diversity studies. For example, New York's "Women on Corporate Boards Study" law, enacted earlier this year, mandates a study on the number of female directors on the boards of companies incorporated in New York or authorized to conduct business in New York.
The boards or nominating committees of Washington public companies should promptly review the new requirements imposed by the WBCA amendment and determine how best to comply. Given the ongoing attention by legislatures, institutional investors and shareholders on board diversity, Washington public companies with diverse boards meeting the new WBCA requirements may choose to voluntarily prepare and disclose a board diversity discussion and analysis. Even if the WBCA's legality is challenged (as has been the case with California's board diversity statute), we do not expect the attention on board diversity and related disclosure to wane. For a discussion of recent developments relating to board diversity, please see our client publication, "Turning Up the Volume of Board Diversity," which was included in our 17th Annual Corporate Governance & Executive Compensation Survey.
1 The law applies to "public companies." A public company is defined under the WBCA as "a corporation that has a class of shares registered with the federal securities and exchange commission pursuant to section 12 or 15 of the securities exchange act of 1934, or section 8 of the investment company act of 1940, or any successor statute." A corporation is defined under the WBCA as a corporation for profit, including a social purpose corporation, that is not a foreign corporation, incorporated under or subject to the provisions of [the WBCA].
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