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Publicly Listed Corporation Diversity

On August 27, 2019, the Honorable J.B. Pritzker signed House Bill 3394 which requires publicly listed companies with their principal executive offices located in Illinois to disclose the following information in Illinois State filings:

  1. The racial, ethnic and gender diversity of their Board of Directors; and
  2. How demographic diversity is considered in their processes for identifying and appointing Director Nominees and Executive Officers; and
  3. Their policies and practices for promoting diversity, equity and inclusion among the Board of Directors, and in the Executive Officers.

This new law, which took effect as of August 27, 2019, will apply to Corporations with their Principal Executive Offices in the State of Illinois and with Outstanding Shares listed on a Major United States Stock Exchange, regardless of where they are incorporated.

The alleged stated goal (??) of this new legislation is to use the reported data "to correct the under representation of women and minorities on Corporate Boards" which may boost (??) the Illinois economy and expand workplace opportunities for women and minorities and assure that the business community is representative of Illinois residents.

Under this new Illinois law, as soon as practicable (and specifically no later than January 1, 2021), an Illinois Headquartered Publicly Listed Corporation must include the following information in its Annual Report that will be filed with the Illinois Secretary of State:

  1. Data on specific qualifications, skills and experience the Corporation considers for its Directors, Director Nominees and Executive Officers.
  2. The self-identified gender of each of its current Directors. In the legislation, the term "female" is defined as a citizen or lawful permanent resident of the United States who self-identifies as a woman, without regard to the individual's designated sex at birth. It is interesting to note that there is no definition of the term "male".
  3. Whether any of its current Directors self-identifies as a minority person and, if so, the applicable race or ethnicity that is identified. A "minority person" is defined as a citizen or lawful permanent resident of the United States who is of one of the following races or ethnicities-American Indian or Alaskan Native; Asian; Black or African American; Hispanic or Latino; Native Hawaiian or Islander.
  4. A description of the Corporation's process of identifying and evaluating Director Nominees and for identifying and appointing Executive Officers including where and how demographic diversity is, in fact, considered.
  5. Description of the Corporation's Policies and Practices for promoting diversity, equity and inclusion among its Board of Directors and Executive Officers.

The Annual Report must be filed by January 1 of each year, beginning no later than January 1, 2021, and made publicly available by the Illinois Secretary of State.

It should also be noted that the new law requires that the University of Illinois establish a rating system for assessing the representation of women and minorities on the Boards of Illinois Headquartered Publicly Listed Corporations. The law requires that the University of Illinois publish its website dealing with publicly listed corporation diversity by no later than March 1, 2021 and annually thereafter.

It is very clear that all public companies, regardless of where they are headquartered, will continue to face greater pressure to diversify their Boards and Executive Office complement. All public companies should familiarize themselves with the new law and the guidelines and policies of their institutional investors and other stakeholders related to diversity and incorporate these diversity stakes into their operations. Obviously, the newly signed legislation makes such action "a requirement" in Illinois. It should also be noted that the State of California recently passed legislation that requires California Headquartered publicly listed companies to have at least one (1) woman on their Board of Directors by the end of 2019 and at least three (3) female Directors on their Board by the end of 2021.

Questions? Contact attorney Walter J. Liszka in our Chicago office at (312) 629-9300 or by email at [email protected].

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