LGBTQ+ – Dickinson Law's Inside Entrepreneurship Law Blog

By: Cassidy Eckrote

What image comes to your mind when you think of a Board of Directors? Let me guess—old, white men. Unfortunately, most boards looked that way not too long ago. But thanks to legal progress and social awareness, companies are taking strides to diversify the composition of their boards.

The murder of George Floyd in 2020 sparked national outrage. Amid public protests, companies issued statements condemning racial inequity and vowed to stand in solidarity with the Black community. While many of these promises went unfulfilled, Nasdaq-listed companies had to put their money where their mouth was.

Nasdaq Board Diversity ruLE

In August 2021, the U.S. Securities and Exchange Commission (SEC) approved Nasdaq’s new listing rules about board diversity. The rules apply to most Nasdaq-listed companies and require affected companies to:

1. Have, or publicly explain why they do not have, at least two diverse directors, and

- To meet this requirement, the company must have at least one female director and at least one director who identifies as an underrepresented minority or LGBTQ+

2. Publicly disclose the diversity statistics of its board on an annual basis

- Companies should use Nasdaq’s standardized disclosure matrix to satisfy this requirement.

Although the above requirements apply to most Nasdaq-listed companies, exemptions exist based on the type of entity or size. Notably, companies with five or less directors are only mandated to have one diverse director. Nasdaq published a helpful FAQ to provide additional details on how to comply with the board diversity rule. Nasdaq also compiled a tool kit to assist companies in recruiting diverse candidates.

sTATE dIVERSITY ruLES

In addition to the Nasdaq rules, companies must also be cognizant of their state’s board diversity laws. For example, public companies incorporated in Washington must have a board comprised of at least 25% females. And in Maryland, all business entities (not just publicly traded companies) with revenues over $5 million must disclose board diversity in their annual reports. Legislatures continue to recognize the importance of board diversity, so companies and their attorneys must stay up-to-date on pending and forthcoming legislation.

bENEFITS OF bOARD dIVERSITY

Implementing a diverse board has countless social and economic benefits. Below are a few advantages to consider when assessing whether your business should diversify the composition of its board.

Strengthen Business Relationships & Public Perception

Now more than ever, the public is paying attention to the behind-the-scenes operations of companies. The “Me Too” and “Black Lives Matter” movements demonstrated that this generation of consumers and investors are not simply concerned about the products or services a company is selling. Consumers and investors now demand gender, racial, sexual, and ethnic representation, and refuse to support companies that fail to meet these standards. This holds true for small and large companies alike. Whether or not the board diversity requirement applies to your business, it is wise to implement a diverse board to survive in the competitive business landscape.

Improve Company Operations & Promote Effective Decision Making

The benefits of a diverse board extend far beyond a favorable public image and strengthening relationships with investors and customers. A board with varying backgrounds, including race, gender, age, ethnicity, and sexual orientation, enhances the company’s operations. If everyone in the room shares similar qualities, their thoughts and viewpoints are more likely to align. Rather than developing an innovative solution, the group is likely to stick to the status quo. This concept is often referred to as “groupthink” and leads to decisions being made without critically assessing alternative solutions. Diversity combats the negative effects of groupthink by supporting differing viewpoints and perspectives. Diverse boards are more likely to discover, and subsequently address, challenges or risks within the company.

Increase Profitability

Research shows that companies with diverse boards experience greater financial performance and pay higher dividends than homogenous boards. Remarkably, companies with diverse boards are 43% more likely to have above-average profits.

Bolster Company Culture

The benefits of having a diverse board of directors will trickle down into all facets of the business. The board is the governing body and thus sets the tone of the company’s culture. Board diversity will lead to recruiting and retaining more diverse leaders, which will translate into more diverse mid and lower-level employees. The practice of fostering an inclusive culture will increase employee satisfaction.

Takeaway

Although companies are taking steps to diversify their boards, women and minority groups continue to be underrepresented in the boardroom. Women comprise just 30% of S&P 500 board members, with ethnic/racial minorities representing only 21%. Your company can become part of the solution by making a conscious effort to recruit and hire diverse candidates.

This post has been reproduced and updated with the author’s permission. It was originally authored on March 21, 2023 and can be found here.

Cassidy Eckrote, at the time of this post, is a recent graduate of Penn State Dickinson Law. She has a B.S. in Business from Penn State University. Cassidy served as a Comments Editor on the Dickinson Law Review. Cassidy is now working as a law clerk in the Southern District of Florida.

Sources:

Https://corpgov.law.harvard.edu/2020/07/14/maximizing-the-benefits-of-board-diversity-lessons-learned-from-activist-investing/.

Nasdaq Final Rule 5605(f); https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5600-series

https://listingcenter.nasdaq.com/assets/Board%20Diversity%20Disclosure%20Matrix.pdf

https://www.jdsupra.com/legalnews/sec-approves-nasdaq-s-board-diversity-9963032/

https://corpgov.law.harvard.edu/2022/06/22/meeting-expectations-for-board-diversity/#:~:text=In%20August%202021%2C%20the%20U.S.,their%20failure%20to%20meet%20the .

https://www.accaglobal.com/us/en/student/exam-support-resources/professional-exams-study-resources/strategic-business-leader/technical-articles/diversifying-the-board.html#:~:text=1.-,More%20effective%20decision%20making,benefits%20are%20further%20elaborated%20below.

https://www.linkedin.com/pulse/20141209150556-218468992-risky-business-homogeneous-boards-a-disadvantage-in-today-s-business-world/

https://www.forbes.com/sites/karstenstrauss/2018/01/25/more-evidence-that-company-diversity-leads-to-better-profits/?sh=5b553f481bc7

https://www.praxonomy.com/blog/the-impact-of-board-diversity-on-company-performance/.

Chaz Brooks, For More Black Corporate Directors and Fewer Corporate Opinions Excusing Their Absence (forthcoming).

By: Adrianna Dunn

In observance of LGBTQ+ Pride Month and the anniversary of the Supreme Court’s landmark decision in Bostock v. Clayton County, the U.S. Equal Employment Opportunity Commission (EEOC) released new resources to help educate employees, applicants, and employers. One of the resources is a page on the EEOC website with information regarding sexual orientation and gender identity discrimination. The other resource is a new technical assistance document that aims to help the public understand what the Bostock decision means and the established EEOC positions on the laws it enforces. Below are some key takeaways from the technical assistance document.

What is Title VII and Who Does it Apply to?

The technical assistance document first gives a summary and explanation of the Bostock case. In this case, the Supreme Court recognized that discriminating against someone on the basis of sexual orientation or transgender status is discriminating against someone on the basis of sex, which is prohibited under Title VII of the Civil Rights Act of 1964. Title VII is a federal law that prohibits employers from discriminating as to any term, condition, or privilege of employment based on a person’s race, color, national origin, sex, and religion. Some specific areas where an employer cannot discriminate based on sexual orientation or gender identity are hiring, firing, furloughs, reductions in force, promotions, demotions, discipline, training, work assignments, pay, overtime, other compensation, and fringe benefits. Title VII applies to the federal government, employment agencies, labor organizations, and both the private and public sectors that have 15 or more employees. It applies regardless of citizenship or immigration status; however, it does not typically apply to independent contractors. Finally, because Title VII is a federal law, it applies nationwide regardless of state or local laws. Even if not required by law, it makes sense for all businesses to comply with Title VII.

What are some of the specific prohibitions regarding sexual orientation and gender identity?

The technical assistance document notes that because Title VII prohibits harassment and other forms of discrimination based on sexual orientation or gender identity, this includes those that are, for example, straight or cisgender.

The document further notes that an employer’s discriminatory action cannot be justified by customer or client preference. Discrimination is not allowed because customers or clients would rather work with those that have a different sexual orientation or gender identity. Also, employers cannot segregate employees because of actual or perceived customer preferences.

An employer cannot discriminate against an employee because that employee does not conform to society’s stereotypes about feminine or masculine behavior, whether or not the employer knows an employee’s sexual orientation or gender identity. This includes the way an employee decides to dress. An employer cannot require a transgender employee to dress in accordance with the sex the employee was assigned at birth. Also, using names or pronouns that are not in accordance with an individual’s gender identity can be considered harassment. The EEOC recognized that accidentally misusing a transgender employee’s preferred name and pronouns is not a violation of Title VII. However, intentional and repeated use of the wrong name and pronouns could contribute to an unlawful hostile work environment. For the conduct to be considered unlawful, it must be severe or pervasive when taking into consideration all other unwelcome conduct based on the employee’s gender identity, leading to a work environment that a reasonable person would consider intimidating, hostile, or offensive.

An employer may have separate, sex-segregated bathrooms, locker rooms, and showers for men and women. Of course, they can also choose to have unisex bathrooms, locker rooms, and showers. However, the EEOC takes the position that employers cannot deny an employee equal access to a bathroom, locker room, or shower that corresponds to the employee’s gender identity.

What can an individual do if their Title VII rights have been violated?

An applicant or employee in the private sector or state and local government can contact the EEOC for help in deciding what to do in these situations. If the individual decides that they want to file a charge of discrimination, the EEOC will investigate to decide if applicable Equal Employment Opportunity (EEO) laws have been violated. It is important to note that an individual must file within 180 days of the alleged violation, or 300 days if the employer is covered by a state or local employment discrimination law, in order to take further legal action. For more information on filing a charge, visit this site. To start the process of filing a charge of discrimination against a private company or a state or local government employer, visit the EEOC Online Public Portal or visit your local EEOC office.

Those in the federal government must contact the EEO Office at the federal agency they believe committed the unlawful employment discrimination. A federal applicant or employee has to request EEO counseling within 45 days of the incident. For more information on the federal sector process for alleging employment discrimination, visit the EEOC’s website.

Finally, an employer cannot retaliate against, harass, or otherwise punish an employee when the employee opposes employment discrimination that they reasonably believed was unlawful, when an employee files an EEOC charge or complaint, or when an employee participates in an investigation, hearing, or other proceeding connected to Title VII enforcement.

Adrianna Dunn, at the time of this post, is a rising third-year law student at Penn State Dickinson Law. She is from Wheeling, West Virginia, and is a graduate of West Virginia University. Adrianna is a Research and Teaching Assistant for Professor Prince.