Board Diversity:
What is the issue?

Every nonprofit is required to have a Board of Directors. At a minimum, the Board is charged with ensuring the organization’s financial responsibility, pursuit of its mission, and legal compliance.

Board Diversity aims to cultivate a broad spectrum of demographic attributes and characteristics in the boardroom.

Why do nonprofits care?

Diversity in all settings has been documented to improve outcomes. The various perspectives and understandings offered from diverse stakeholders make for stronger governance. And diversity is more and more being recognized in the U.S. as fair and necessary.

However, according to a June 2021 survey of the U.S. Nonprofit sector by the Urban Institute, only 21% of nonprofit board members are women or come from racial or ethnic minorities. In that same month, according to Fortune Magazine, 42% of board members on publicly held Fortune 100 companies represent these populations. Our sector clearly (and still) lags in board diversity.

Is this a legislative issue?

Many state houses have taken an interest in legislating the issue of board diversity although virtually all the proposed legislation applies to publicly held entities and not nonprofit organizations.

One exception is New York State where legislation was introduced in 2022 (Senate Bill 5971 and its companion House Bill A3620), which would require nonprofit boards receiving state funds to reflect the ethnic makeup of the communities they serve. However, this legislation was not enacted before the New York legislature adjourned for the year in 2022; and thus, the legislation “died” as all bills do when they have not been enacted before adjournment for the end of the legislative cycle.

The most far-reaching board diversity statute in the country passed in California requiring publicly held companies with principal offices in California to have a minimum number of “underrepresented communities” on their board of directors, requiring a minimum of two directors from underrepresented communities on boards with between four or nine members. The law defines underrepresented community as “an individual who self-identifies as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

However, in April 2022, this California law was struck down by the Superior Court of Los Angeles when it said the law was in violation of the Equal Protection Clause of the California Constitution. In August 2022, the California Secretary of State appealed the Superior Court decision to the Appellate Division of the Superior Court of Los Angeles. However, on December 19, 2022, the Appellate Division of the Superior Court sustained the decision of the lower court. It is unclear at this point if there will be further appeals.

In all, twelve states have enacted or have considered board diversity legislation, calling for greater disclosure or requiring diversity. To date, no legislation has been enacted which would directly impact nonprofit boards.

At the federal level over the years there have been several bills introduced in Congress related to board diversity. To date, none has been passed by either the House or the Senate. And so far in the new Congress, which was just seated in early January, no legislation has been introduced.

What next?

While most state legislation has not been specifically directed toward the nonprofit community, TNPA believes that diversity is important for the strength and success of the nonprofit sector. We will continue to monitor and assess the potential impact of proposed legislation.