What is the issue?

Nonprofit organizations are required to have a Board of Directors, 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 to broaden the perspectives and experience of the organization’s leadership. In some cases, this includes ensuring that the governing body reflects the population of the communities the organization serves.

Is this a legislative issue?

Many state houses have taken an interest in legislating 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 have required 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 2022, and thus, it died.

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, the Superior Court of Los Angeles struck down this California law because it said it violated 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, and in December 2022 the Appellate Division of the Superior Court sustained the decision of the lower court. 

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

Several bills related to board diversity have been introduced in Congress at the federal level. To date, none has been passed by either the House or the Senate.