Article Source: International Employment Lawyer
Author: Philip Berkowitz
Multinational companies are under increasing legal and social pressure to increase their representation of women and minorities on boards and in their workforce. Long after the practice became commonplace in Europe, the United States is beginning to impose initiatives mandating that companies include a certain number of minorities on their boards.
Separate and apart from board membership, implementing quotas requiring the hiring of women or minorities in the US is generally unlawful. The move toward mandating women and minorities on boards is nevertheless picking up pace.
In September 2020, California passed a board-diversity mandate requiring that by the end of 2021, publicly held corporations with principal executive offices in the state have at least one board member “who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or … gay, lesbian, bisexual, or transgender”.
California law also requires that public companies include on their boards a minimum of one woman. That minimum increases to two by 31 December 2021, if the corporation has five directors, and to three if the corporation has six or more directors.
While no other US state currently mandates a minimum number of female directors, at least 11 states have enacted or are considering board diversity legislation that require disclosures about diversity on boards or in senior management.
In December 2020, in the financial services sector, NASDAQ proposed rules (currently under examination by the Securities and Exchange Commission) that would require companies listed on its exchange to meet certain minimum diversity targets on their boards or explain in writing why they are not doing so.
The rules would require most US-based, Nasdaq-listed companies to have, or explain why they do not have, at least one woman on their boards, in addition to a director who is a racial minority or one who self-identifies as LGBTQ. Companies would also be required to disclose diversity metrics regarding their boards. Foreign companies and smaller reporting companies would have additional flexibility in satisfying this requirement.
The European Union has floated plans to require publicly traded companies to adopt quotas mandating a minimum percentage of women on their boards. While the idea has faced opposition from certain members (notably former member the United Kingdom), nevertheless Germany, Norway, France, Spain, Italy, Iceland, Belgium, and the Netherlands, have passed their own laws mandating this.
As a response to these initiatives at the board level, many European companies have undertaken commitments to increase diversity beyond their boards, and within their general workforce.
…the skills needed in today’s increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints
In the US, however, mandatory hiring quotas based on gender or any other protected factor may violate anti-discrimination laws. While the law encourages voluntary diversity and affirmative action, these efforts are subject to careful judicial scrutiny to assure that they do not constitute unlawful “reverse discrimination”.
Implementing even an aspirational goal runs the risk that recruiters, human resource professionals, or hiring managers will feel compelled to inject gender into their decisions.
Diversity in the workplace is of course an important goal and is broadly recognised as such in the US. The Supreme Court held in Grutter v Bollinger [2003] that a law school’s narrowly tailored use of race in admissions decisions was lawful. In so holding, the court endorsed the view that “the skills needed in today’s increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints”.
In United Steelworkers v Weber [2007], the Supreme Court held that an employer’s plan of limited duration reserving at least 50% of certain jobs for African Americans was lawful because it did not “unnecessarily trammel the interests of white employees”.
But making individual employment decisions based on protected status generally remains unlawful, unless the decisions are part of a policy that is temporary in nature and that responds to a goal of remedying past discrimination. Choosing between two equally qualified employees based solely on their gender, for example, is never permissible. If an employee can show she was denied an opportunity in a discrete employment decision as a result of that policy, the claim may be difficult to defend.
Employers in the US can lawfully take numerous steps to increase diversity. They can and should encourage leaders to participate in diverse organisations meant to support and foster diversity.
In recruiting and promoting, they should seek diverse slates of qualified candidates. They should make sure that the standards and methods of the recruitment and promotion processes are clear, neutral, and unbiased.
Other appropriate initiatives include training on issues such as unconscious bias; establishing career advocacy programmes that pairs high-performing employees with influential leaders to help them develop the skills and visibility needed to progress in their careers; and organising affinity groups, which can provide diverse employees with a platform to expand and develop professionally.
Diversity remains a worthy goal for multinational employers. Companies can and should make every effort to increase their diverse employee populations.
In the US, at least for the time being, adopting hiring or promotion quotas is generally unlawful in most instances. While increasing legislative pressure on employers in choosing board members may change this dynamic, mandating hiring quotas would likely face a strong legal challenge from groups who perceive it as unlawful reverse discrimination.
Philip M Berkowitz is a member of the CGCC Legal Counsel Committee, US practice co-chair of Littler Mendelson’s international employment law practice group and co-chair of the firm’s financial services industry group
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