After the murder of George Floyd in 2020 and the national protests that it triggered, many of the country's largest corporations expressed solidarity and pledged support for racial justice and racial and ethnic diversity, equity and inclusion. Some institutional investors also beefed up their proxy voting policies, demanding both greater transparency and more racial and ethnic diversity. One place that companies looked to implement their commitments to DEI was at the board level. Now, about two years after that horrific event, how much progress have companies made? Using the end of proxy season in 2020 as a starting point, ISS has some recent data. ISS concludes that, while substantial progress has been made in board racial and ethnic diversity, "many boards still do not reflect the diversity of their customer base or the demographics of the broader society in which they operate."

S&P 500. ISS reports that, in 2022, all boards of companies in the S&P 500 had at least one director that identified as racially or ethnically diverse; in comparison, in 2020, 11% of boards in the S&P 500 had no racially or ethnically diverse directors. In addition, in 2022, 36% had three racially or ethnically diverse board members, compared to 22% in 2020. Similarly, in 2022, 31% had four racially or ethnically diverse board members, compared to only 7% in 2020—an increase of 24 percentage points. The percentage of board seats held by racially or ethnically diverse directors grew from 19% in 2020 to 23% in 2022. There were, however, differences among different races and ethnicities. For example, persons identifying as Hispanic/Latin American constituted up 18.5% of the U.S. population (according to the April 1, 2020 census), but held only 4% of S&P 500 board seats in 2020 and only 5% in 2022. African-Americans held 9% in 2020 and 12% in 2022; Asians held 5% in 2020 and 6% in 2022.

Russell 3000. Since mid-2020, ISS reports significant increases in racial and ethnic diversity on boards of large- and mid-cap companies. In 2020, 38% of companies in the Russell 3000 had no racial or ethnically diverse board members; in 2022, that percentage declined to 10%. In addition, while the percentage of companies with one racially or ethnically diverse director increased by three percentage points from 2020 to 2022 (32% to 35%), the percentage of companies with two or more racially/ethnically diverse directors soared by 26 percentage points from 2020 to 2022 (29% to 55%). The percentage of board seats held by racially or ethnically diverse directors grew from 11% in 2020 to 16% in 2022. According to ISS, however, progress among the Russell 3000 "lagged significantly behind their S&P 500 counterparts," and differences among races and ethnicities were also pronounced. In 2022, only 3% of directors identified as Hispanic/Latin American, compared to just 2% in 2020. In contrast, 7% of directors identified as Asian in 2022, compared to 5% in 2020. African American directors occupied 6% of board seats in 2022, compared with 3% in 2020.


Some of these increases might just be attributable to the impact of California's AB 979, a board diversity statute for "underrepresented communities," which was signed into law in 2020. Patterned after California's board gender diversity statute (SB 826), AB 979 required that a "publicly held corporation" (that is, a corporation with outstanding shares listed on a major U.S. stock exchange) with principal executive offices (according to its Form 10-K) located in California, no matter where it is incorporated, have a minimum of one director from an underrepresented community by the end of 2021. No later than the close of 2022, a corporation with more than four but fewer than nine directors would be required to have a minimum of two directors from underrepresented communities, and a corporation with nine or more directors would need to have a minimum of three directors from underrepresented communities. A director from an "underrepresented community" means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. A corporation could increase the number of directors on its board to comply with the law. As with board gender diversity, the law was expected to lead companies to look outside their traditional channels to find new directors from these communities. (See this PubCo post.)

The statute, however, faced legal challenges. Framed as a "taxpayer suit," Crest v. Padilla sought to enjoin Alex Padilla, the then-California Secretary of State, from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law as well as a judgment declaring the diversity mandate to be unlawful in violation of the California constitution. After a hearing on motions by both parties for summary judgment, in April, the Los Angeles Superior Court issued its Order granting plaintiff's motion for summary judgment. The Court concluded that the statute, Corporations Code § 301.4, violated the equal protection clause of the California Constitution on its face. Why? "Because Section 301.4 treats similarly-situated individuals differently based on race, sexual orientation, and gender identity," the Court concluded, "because that use of suspect categories is not justified by any compelling interest, and because the statute is not narrowly tailored to serve the interests offered, Section 301.4 violates the Equal Protection Clause of the California Constitution. Plaintiffs are entitled to a judgment declaring as much and an injunction preventing the expenditure of taxpayer funds on implementation of the measure." (See this PubCo post.)

California's Secretary of State has filed a notice of appeal and a motion for a stay of the injunction pending appeal.

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