17 Feb Wisconsin Utility Companies Power-Up Their Boards and Workforce

After almost a year of extreme social unrest, companies are increasingly facing pressure from stakeholders to do their part in eradicating racial biases in the workplace. One of the ways in which employers can do so is by recruiting, hiring, training, and promoting a diverse Board of Directors. Diversity is by no means limited to race either – gender, sexual orientation, and veteran status are all equally as valuable in the boardroom. A diverse board brings together individuals with diverse experiences, fostering a more innovative environment, leading to better strategic decisions and ultimately better financial performance.

In recognition of this, states have begun enacting legislation requiring or encouraging companies to establish a more diverse board. California, for example, passed a bill in 2018 requiring public companies with their principal executive office in the state to have at least one female director on their board by the end of 2019. Upon a review of the data, lawmakers noticed that a large majority of women that were subsequently appointed after the enactment of the law were white, sparking further legislation that was just passed in September 2020. The new law requires these same companies to have at least one director on their board who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, or as gay, lesbian, bisexual, or transgender. These companies will have until the end of 2021 to comply with the new law, leaving companies with less than a year to recruit and appoint new board members.

Other states that have followed California’s lead include Illinois, Washington, Maryland, Colorado, and Wisconsin. Because states have taken several different approaches, and penalties for failure to comply can be as steep as $300,000, companies must be wary of whether these new board diversity laws will apply to their company and, if so, how to comply.

Applicability

The board diversity laws that have been enacted thus far differ in terms of applicability. Most state laws, such as those in California and Illinois, apply only to publicly held foreign and domestic corporations with their principal executive office in that respective state. Maryland’s law, in contrast, applies both to domestic corporations with total sales of at least $5,000,000 and to domestic nonprofit organizations with an operating budget of at least $5,000,000. Furthermore, Maryland’s law exempts privately held companies where at least 75% of the company’s shareholders are family members.

Mandatory v. Voluntary

Board diversity laws will either require companies to appoint a minimum number of diverse board members, or the law will simply encourage corporations to increase diversity representation on their boards. Corporations may be required to appoint a certain number of diverse directors; this may be the only requirement, or a reporting requirement may accompany this mandate. The most hands-off approach, followed by Colorado, urges companies to have a minimum number of female directors, with no reporting requirement.

Further, states may differ on the kind of diversity they are requiring or encouraging. While most of the laws promote the appointment of female directors, Illinois and California went further by addressing racial diversity as well. Taking even one step further, California promotes LGBT board representation.

Foreseeable Challenges and Potential Solutions

The turnaround time between the enactment of the law and its effective date may leave companies in a bind as it relates to the recruitment and appointment of new diverse board members. When most board members are referred primarily from an existing relationship or word of mouth, companies may have a hard time finding new potential board members with adequate experience within the limited time frame. Fortunately, companies have several options to enhance their recruitment techniques and expand their pool of talent both inside and outside of the company.

Companies should use these laws as an opportunity to reinforce any commitments to diversity and inclusion. Internally, companies should consider providing industry-specific training to employees to further their growth and commitment to the company. Similarly, companies can sponsor diverse employees to attend workshops that further their business acumen. Not only will this provide for a more effective and efficient workforce, but employers can use this additional training as an opportunity to identify diverse employees that have the potential to one day serve as a board member. Externally, companies should engage with and support advocacy groups within the community. Likewise, The Board Challenge is a social movement designed to increase the representation of Black directors. Companies can pledge to add at least one Black director to their board within twelve months, or if their board already consists of at least one Black director, companies can pledge to use their resources to further the movement. Again, companies can use these options as opportunities to garner goodwill and expand their pool of diverse talent.

Finally, a company’s job does not stop once they have appointed a diverse director to the board. Companies will not reap the benefits of having a diverse board if they diminish the importance of inclusion. Companies need to create and maintain an environment in which diverse employees, but particularly new diverse board members, have a voice and opportunity to be heard.

Wisconsin’s Approach

While Wisconsin is not requiring companies to appoint a certain number of diverse directors, Wisconsin’s new diversity reporting requirements are unique compared to those already mentioned. First, it is the Public Service Commission of Wisconsin (PSC) that is promulgating the requirement upon all regulated utilities in Wisconsin, regardless of their size and ownership type. Additionally, these companies will be required to disclose to the PSC demographic information about both their Board of Directors and all employees. Companies will be required to report the number of women, racial and ethnic minorities, veterans, and individuals with disabilities. The utility companies will have to include this information within their annual report filed with the PSC. Accordingly, the PSC has extended the deadline for the report from April 1, 2021 to June 1, 2021. While Wisconsin’s approach is seemingly narrow in its applicability, companies in other industries should be on the lookout for similar reporting requirements, as it is clear now that Wisconsin supports the policy of having a diverse workforce and board.

This article is a publication of MWH Law Group LLP and is intended to provide general information regarding legal issues and developments to our clients and other friends. It should not be construed as legal advice or a legal opinion on any specific facts or situations. For further information on your own situation, we encourage you to contact the author of the article or any other member of the firm.

© MWH Law Group LLP 2021. All rights reserved.

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MELISSA RUBIO
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EMERY K. HARLAN
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735 N. Water Street, Suite 610, Milwaukee, WI 53202
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