US Bill on Gender Diversity in the Boardroom
Last month, the New York Congresswoman Carolyn Maloney introduced a legislative proposal aiming to promote gender diversity on US corporate boards. The Gender Diversity in Corporate Leadership Act (H.R. 4718) aims to strengthen diversity disclosure requirements and to increase the role of the Security and Exchange Commission (SEC) in encouraging gender diversity. The legislation would require listed companies to disclose in the annual proxy materials the gender composition of their boards and board candidates. It would also require the SEC to establish a Gender Diversity Advisory Group, charged with studying and recommending ways to increase gender diversity on corporate boards.
Women occupy around 16% of the seats on the boards of US listed companies (S&P 1500), according to a recent study by the US Government Accountability Office. In the largest US listed companies (S&P 500), the board female representation has increased five percentage points over the past 10 years, from 15% in 2005 to 20% in 2015. This increase has been mostly market-driven. The market has created an impressive array of initiatives promoting gender parity in the workforce, including non-profit organisations, diversity awards, diversity rankings and board-ready female databases.
Catalyst is one of the most prominent non-profit US organisations promoting gender diversity in the workplace. Founded in 1962, it currently has more than 800 members worldwide, including business corporations, partnerships, business schools, and associations. It publishes regular census and research reports tracking the progress of gender diversity in boardrooms and executive suites worldwide. It also publishes good practice studies of its member companies, which are available to all other members. Catalyst’s annual diversity reports are widely covered by media and are often invoked by legislations, policy makers and academics. The 30% Club is another prominent organisation. Its name refers to the group’s goal to boost the proportion of women on boards to 30%, which is believed to be the critical mass required for a minority to have a significant voice in a group. Launched in the UK in 2010, the Club is currently present in ten countries (including the US) through local chapters. The Club campaigns for the attainment of 30% female board representation towards the end of this decade. It also aims to develop the pipeline for female directors and executives, by focusing on the earlier stages of women’s careers and education.
Diversity awards are another market tool for encouraging board gender equality. The Catalyst Award honours annually the most successful innovative organisational approaches to the recruitment, development, and advancement of all women. Another notable initiative is the DiversityInc Top 50 Companies for Diversity, compiled annually by DiversityInc, a US-based foundation. Gender diversity indexes also increase the visibility of the gender equality issue. 2020 Women on Boards, a US-based non-profit organisation, publishes annually a Gender Diversity Index (GDI) of Fortune 1000 Companies. The GDI is a subset of the 2020 Gender Diversity Directory, a database of public and private companies categorised by the gender composition of their boards.
Moreover, databases with women who are qualified to be appointed on company boards have been created. The most notable initiative is the Global Board Ready Women, a database of women who are suitable to be considered for publicly listed company board-level positions. The database was created by the European Business Schools Women on Boards Initiative, which includes over 180 leading business schools and professional organizations from 70 countries from around the world. Other similar projects include the Stanford Women on Boards Initiative, WomenCorporateDirectors (WCD) Foundation, and Diversity in Boardrooms.
Despite widespread market support for board gender balance, the progress remains slow. At the current rate of change, if equal proportions of women and men joined boards each year, it would take more than four decades for US companies to achieve full gender parity. The slow pace of progress, it has been argued, is a market failure that calls for government intervention. In contrast to Europe, where quotas legislation is increasingly popular, the US regulator prefers to encourage firms to increase number of women directors using a combination of recommendations and disclosure requirements. SEC requires listed companies to disclose whether they consider diversity as a factor in selecting the board members. If a company has a policy for considering diversity, it must disclose how such policy is implemented, as well as how the nominating committee (or the board) assesses its effectiveness. The SEC rule does not define diversity, and this leaves scope for companies to interpret it narrowly or broadly. This allowed many companies to issue only brief statements indicating that they considered diversity as part of an informal policy. To address this ambiguity, a recent petition submitted to SEC by several institutional investors proposes that the disclosure requirements specify expressly that companies must include information about directors’ gender, racial, and ethnic diversity, as well as their mix of skills and experience.
At state level, there are no significant gender diversity obligations imposed by corporate law. Resolutions encouraging board diversity have been passed in California, Illinois and Massachusetts.  The Delaware law requires directors to be natural persons, but has no provisions regarding qualifications or diversity attributes. The Delaware Court of Chancery emphasised that it is the shareholders’ prerogative to determine the fitness or unfitness of individuals to become directors, and it would be highly improper for the court to second-guess their options.
The Gender Diversity in Corporate Leadership Act is in its infancy. To become law, the Bill must be approved by both the House of Representatives and the Senate, and signed by the President. The journey is long, but it has an auspicious start. The Bill garnered the support of Catalyst, the American Bar Association, and leading national business association, the US Chamber of Commerce.
 Us government Accountability Office, “Strategies to Address Representation of Women Include Federal Disclosure Requirements” (2016)
 See e.g. the European Commission, “Impact Assessment on Costs and Benefits of Improving the Gender Balance in the Boards of Companies Listed on Stock Exchanges” (2012)
 The European Commission, “Gender Balance on Corporate Boards: Europe is Cracking the Glass Ceiling” (October 2015)
 See Regulation S-K of the Securities Act of 1933, 17 C.F.R. § 229.407(c)(2)(vi)(2010).
 Luis Aguilar, “Speech by SEC Commissioner: Board Diversity: Why it Matters and How to Improve It” (2010)
 Edward Welch, E. and Andrew Turezyn, Folk on the Delaware General Corporation Law 2009: Fundamentals (Philadelphia: Aspen Publishers, 2009) 244
 In Re Gulla, 115 A. 317, 318 (Del. Ch. 1921)