Gender Diversity in Washington Boardrooms

Gender Diversity in Washington Boardrooms

by | March 24, 2021

Despite the push in recent years for increased gender equality in the workplace, many company boardrooms are still largely male-dominated. In June of 2020, Governor Jay Inslee signed SSB 6037 into law in an effort to recognize the many qualified women in the Pacific Northwest. Developed by the Washington State Women’s Commission, the law aims to encourage companies in Washington state to make meaningful efforts towards gender equity. It follows in the footsteps of similar laws in states such as California, Illinois, and Colorado. Each of these states impose varying requirements and penalties for measures related to board diversity. Given this latest development, business owners should determine whether the new Washington law will apply to them and consider strategies to increase gender diversity in their companies.

Who is covered by SSB 6037?

The new law applies to public companies incorporated in Washington, whether the company’s headquarters is in another state or not. A public company is defined as a corporation that has a class of shares registered with the federal securities and exchange commission. However, the following companies are exempt from the law:

  • Companies that don’t have outstanding shares of any class or series listed on a U.S. national securities exchange.
  • Companies that are defined as “emerging growth companies” under SEC rules.
  • Companies that are defined as “smaller reporting companies” under SEC rules.
  • Companies in which one person or a group of persons hold more than 50% of the voting shares.
  • Companies whose articles of incorporation authorize the election of all or a specified number of directors by one or more separate voting groups.
  • Companies that are not legally required to hold an annual meeting of shareholders (for example, LLCs).

Gender Diversity Requirements and Penalties for Businesses

Under SSB 6037, company boards covered by the law must be at least 25% self-identifying women. This requirement has a “look back” period of 270 days of the fiscal year before the company’s annual meeting of shareholders. This means that even though the law takes effect on January 1, 2022, companies should begin to examine their board’s gender diversity as soon as possible. For example, if a company holds its annual board meeting on September 1, 2022, it will need to meet the law’s diversity requirements by December 5, 2021.

If a company fails to meet the diversity requirements, they must provide a diversity analysis to shareholders entitled to vote at its annual meeting. The analysis should discuss diversity considerations during the board selection process, proposed policies to improve board diversity, and company mechanisms to refresh the board. Alternatively, if the company is missing one of these three aspects, they should explain why. Businesses can fulfill the analysis component through several different mediums, such as posting it on a company website or filing it in a proxy statement.

Should a company also fail to provide a diversity analysis after falling short of the diversity requirements, the sole remedy is for a shareholder with voting rights at the annual meeting to get a court order requiring the company to give its disclosure. However, the shareholder should first provide notice to the company. Given that the penalties for failing to meet SSB 6037 don’t affect the validity of corporate actions, risk to companies covered by the law will be relatively low.

Best Practices for Boardroom Gender Diversity Compliance

Not only is diverse governance now a legal requirement under Washington law, but it also has been shown to improve business operations overall. How can business owners ensure that they are complying with the new boardroom gender diversity requirements?

  • Examine Pathways to Leadership: One way is to critically examine existing pathways to leadership and whether those pathways provide ample opportunity for people of diverse backgrounds to advance through the company. Policies such as term limits can help ensure that new voices are continually being heard and valued.
  • Enhance DEI Efforts: Business owners can also work to develop company-wide values like diversity, equity, and inclusion. Get more proactive by implementing a diversity monitoring mechanism to review the makeup of the company board.
  • Incorporate Legal Counsel into Planning: Enlist legal help by speaking with a corporate counsel attorney team to ensure that your business is up to date with the latest legal requirements. At Equinox, our corporate counsel team can help you determine how to stay compliant with employment laws and diversity requirements. Contact us today at 425-250-0205 or contact@equinoxbusinesslaw.com to get started.

Legal Disclaimer: This article contains general information. Do not view this article as legal advice. Talk with counsel familiar with your unique business needs before taking or refraining from any action.