women – 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: Allyson Lonas

Women entrepreneurs are facing unprecedented challenges during COVID-19. In this pandemic, women may not only be faced with the challenge of running a business from home but could be simultaneously in charge of their children’s care and maintaining the household. These women have been given the task of adapting to a new business environment, developing out-of-the-box thinking, and using their skills to conform to this new era of entrepreneurship. They have had to in order to keep their business afloat. So, we must prioritize these women and focus on providing capital to female business owners.

Why are women entrepreneurs suffering more than their male counterparts?

The COVID-19 global crisis has revealed that our daily lives are built on the unpaid work of women. Although women have outpaced men in college attendance and degrees, the number of women engaged in unpaid work continues to outpace that of men. Crises tend to reinforce the idea men are responsible for putting bread on the table while women should take care of the children. In the United States, statistics from 2019 reveal that the average hours per day parents spent caring for their children within the home was higher for women, even when these women worked outside of the home. In fact, a woman employed full-time spends an average of 2 ho urs on household activities and caring for family members.

According to the Bureau of Labor Statistics, the percentage of women engaging in household activities is 84.9% compared to 71.4% of men. Women spend three times as many hours as men in unpaid care and domestic work, limiting their access to opportunities in the workforce. This leads to women entrepreneurs being at the heart of the COVID-19 response.

As the formal and informal supply of childcare declines, the demand for unpaid childcare provision falls on these women. According to UNESCO, 1.37 billion students (80 percent of the world’s student population) are back home as COVID-19 closures expand. Overwhelmingly, this constrains a parent’s ability to work-from-home with children back in the household. According to the National Bureau of Economic Research, working women bear the brunt of the COVID-19 recession, unlike previous downturns that hit working men the hardest. In the aftermath of the global financial crisis, men suffered the majority of job losses because males dominated the manufacturing and construction industries which suffered the biggest blow. But, Sociology Professor Aliya Hamid Rao, at Singapore Management University, found women took longer to return to work even after the last downturn as a result of women taking care of their families.

COVID-19 provides different challenges; now, the hardest hit industries are those where workers cannot telecommute. And evidence suggests that working women are more likely to have jobs that do not allow them to telecommute. The majority of women-owned businesses are hair salons, nail salons, and hospitality/food service industries. Additionally, with women taking on the role of household maintenance, those hours spent at home taking care of their children are hours that could be spent on income generation. This burden is at the heart of the motherhood penalty in the workforce. It is devastating for women who have spent their whole life building their businesses, both economically and from a mindfulness standpoint. Their business is their livelihood, their success, and years of hard work.

What can women entrepreneurs do…

Even though many women entrepreneurs are overwhelmed with business operations and are worried about keeping their doors open, there is a solution to their problem. The solution involves support: on the governmental and community level.

On March 27th, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted. The relief package was a $2 trillion economic relief package to protect people from the public health and economic impacts of COVID-19.
The Women’s Business Enterprise National Council provides a variety of options for women: funding options, grants, and financial resources, and business support tools. The coronavirus relief options include the Paycheck Protection Program, EIDL Loan Advance (providing $10,000 of economic relief to businesses experiencing temporary difficulties), SBA Express Bridge Loans, and SBA Debt Relief.
For small business owners, the Paycheck Protection Program resumed accepting applications on July 6 and is a crucial loan program providing loan forgiveness for retaining employees during the pandemic. On the Women’s Business Enterprise National Council website (link above), there is a “learn more” button to take you to a particular funding option where you can access additional program information, frequently asked questions, and view a direct application.
In Pennsylvania, we are fortunate that the Pennsylvania Department of Community and Economic Development has specific programs and funding to ensure that financial assistance reaches minority-owned and woman-owned businesses. So note: if you are a woman entrepreneur in another state, check and you may have similar assistance waiting for you!

With so many options available, the process might seem overwhelming and difficult. To help, here is a quick guide to help point women entrepreneurs in the right direction.

Even the playing field for obtaining financial help for female entrepreneurs is far from level. A recent study found that men were significantly more likely to secure funding than women when presenting the same business concept. Fortunately, there are non-traditional ways to obtain funding. The Capital Access Lab is a national initiative that aids to find, promote, and provide new kinds of capital to underserved entrepreneurs, including women. It will provide capital in the range of $250,000 to $1 million into three to five investment funds.

In addition, there are other programs to provide support for women. The company, EnrichHer, helps fund small businesses created by women. Their mission is to focus on social change for women and create opportunities for women-led businesses.

Verizon is even launching a mentoring program for women entrepreneurs affected by COVID-19. This program will connect women entrepreneurs and business owners with a network of women business leaders to guide them through the pandemic’s challenges. The goal is to help women entrepreneurs in a variety of ways.

The Women’s Bureau also helps women by developing policies to protect the interests of working women, promoting equality and economic security, and promoting quality work environments.

…and how can we help?

Women entrepreneurs need us.

First, policymakers should consult women in economic planning and policies. Policies that do not consult women are less effective and create more harm. Before the pandemic, women struggled for equality, something that now seems to be further out of reach. The government and investors should refocus their attention once more on gender equality. Across the United States, 55% of the 20.5 million jobs lost in May were held by women. As the government shifts to rethinking its economy, it could aid the goals of equality. For example, improving the balance of women in companies’ leaderships. Government subsidies could be used to replace pay for workers who need to provide childcare during the crisis due to school and daycare closures and are therefore unable to work, conditional on a continued employment relationship (where they can return to work immediately). Then they could partner with investors to channel funds into companies led by women. It is important we prioritize women entrepreneurs and help provide capital to them.

Second, we need to spread the word and promote women-owned businesses. If you know a local vendor, maybe try her restaurant for lunch instead of a mainstream establishment. If you are going for a morning coffee, visit your local barista. A simple share on Facebook can increase the business’s advertisement reach.

Lastly, we need to show support. Evidence suggests the impacts of the COVID-19 global recession will result in a prolonged dip in women’s incomes and labor force participation. Although these women have conquered the challenge of developing online strategies, revisited their business plans, and adapted to the customers’ needs in a time of crisis, they still need us. Women entrepreneurs are at the heart of this crisis and they need to know we are here to help!

Allyson Lonas, at the time of this post, is a rising second-year at Penn State Dickinson Law. Originally from Johnstown, Pennsylvania, Ally attended The Pennsylvania State University for her undergraduate degree and has interests in corporate law, antitrust law, and government law. In her free time, pre-COVID-19, she enjoyed traveling.