Bloomberg reports:
Lawmakers in Illinois have advanced a bill that would require public companies headquartered in the state to place at least one female and one African-American director on their boards of directors.
H.B. 3394, which passed the Illinois House on March 29 by a vote of 61-27, amends the state’s Business Corporation Act and imposes various reporting duties on public companies. It also creates a compliance deadline of Dec. 31, 2020. The Office of the Secretary of State can impose penalties on companies for violations.
The bill underscores some policy-makers and diversity advocates’ heightened attempts to remake U.S. corporate boards through specific legal requirements. It could have an impact on some of the biggest corporate names on the S&P 500. Major public companies headquartered in the state include Walgreens Boots Alliance Inc., Boeing Co., Archer Daniels Midland Co., Caterpillar Inc., Allstate Corp., United Continental Holdings Inc. and McDonald’s Corp.
I am highly dubious of the constitutionality of these statutes to the extent they purport to apply to companies incorporated in other states. See my WLF post California Corporate-Board Quota Law Unlikely to Survive a Constitutional Challenge. I'm also dubious of these statutes on the merits. The initial empirical study of the California statute found that:
On September 30, 2018, California became the first U.S. state to introduce a mandatory board gender quota for all firms headquartered in California. We find that the introduction of the quota is associated with significantly negative announcement returns for these firms. Consistent with the quota imposing frictions, the effect is larger for firms requiring more female directors to comply with the quota and for firms with poor corporate governance. We also document negative spillover effects to non-Californian firms. They are larger for firms operating in industries in which Californian firms lack more female directors, suggesting that valuable female directors may migrate from non-Californian to Californian firms. We also document negative spillover effects for firms headquartered in states that are more likely to follow California’s lead. These are firms headquartered in states dominated by the Democratic Party and states which followed California’s lead in legalizing cannabis consumption and raising minimum wages exceeding the federal rate. Finally, we show that, already as of month-end December 2018, female representation on the boards of Californian firms increased. Newly appointed female directors are younger, less experienced, and less independent than incumbent and leaving directors.
von Meyerinck, Felix and Niessen-Ruenzi, Alexandra and Schmid, Markus and Davidoff Solomon, Steven, As California Goes, So Goes the Nation? The Impact of Board Gender Quotas on Firm Performance and the Director Labor Market (February 22, 2019). Available at SSRN: https://ssrn.com/abstract=3303798 or http://dx.doi.org/10.2139/ssrn.3303798
I'm also puzzled by the decision to limit quotas to African-Americans. What about other under-represented minorities? I'm not enough of a constitutional lawyer to know if that will affect judicial review of the statute under the Equal Protection Clause, but I'm guessing it won't help.
