SB0076sam001 101ST GENERAL ASSEMBLY

Sen. Cristina Castro

Filed: 3/13/2019

10100SB0076sam001 LRB101 07114 JLS 57520 a

AMENDMENT TO SENATE BILL 76

AMENDMENT NO. ______. Amend Senate Bill 76 by replacing everything after the enacting clause with the following:

"Section 5. The Business Corporation Act of 1983 is amended by changing Section 14.05 and adding Section 8.90 as follows:

(805 ILCS 5/8.90 new)

Sec. 8.90. Female directors.

(a) Findings and policy.

(1) More female directors serving on boards of directors of publicly held corporations will boost the Illinois economy, improve opportunities for women in the workplace, and protect Illinois taxpayers, shareholders, and retirees, including retired State employees whose pensions are managed by the State. Yet studies predict that it will take 40 or 50 years to achieve gender parity, if something is not done proactively.

(2) In May 2015 and again in May 2017, the General Assembly passed resolutions urging that, within the next 3 years, all public companies in Illinois increase the number of women on their boards of directors ranging from one to 3, depending upon the size of their boards. Five other states have passed similar resolutions urging more female directors on corporate boards in their states.

(A) A 2017 study by MSCI found that United States companies that began the 5-year period from 2011 to 2016 with 3 or more female directors reported earnings per share that were 45% higher than those companies with no female directors at the beginning of the period.

(B) In 2014, Credit Suisse found that companies with at least one woman on the board had an average return on equity of 12.2%, compared to 10.1% for companies with no female directors. Additionally, the price-to-book value of these firms was greater for those with women on their boards: 2.4 times the value in comparison to 1.8 times the value for zero-women boards.

(C) A 2012 University of California, Berkeley study entitled "Women Create a Sustainable Future" found that companies with more women on their boards are more likely to create a sustainable future by, among other things, instituting strong governance structures with a high level of transparency.

(D) Credit Suisse conducted a 6-year global research study from 2006 to 2012, with more than 2,000 companies worldwide, showing that women on boards improve business performance for key metrics, including stock performance. For companies with a market capitalization of more than $10,000,000,000, those with female directors on boards outperformed shares of comparable businesses with all-male boards by 26%.

(E) The Credit Suisse report included the following findings:

(i) There has been a greater correlation between stock performance and the presence of women on a board since the financial crisis in 2008.

(ii) Companies with women on their boards of directors significantly outperformed others when the recession occurred.

(iii) Companies with women on their boards tend to be somewhat risk averse and carry less debt, on average.

(iv) Net income growth for companies with women on their boards averaged 14% over a 6-year period, compared with 10% for companies with no female directors.

(4) Other countries have addressed the lack of gender diversity on corporate boards by instituting quotas mandating 30% to 40% of seats to be held by female directors. Germany is the largest economy to mandate a quota requiring that 30% of public company board seats be held by women; in 2003, Norway was the first country to legislate a mandatory 40% quota for female representation on corporate boards. Since then, other European nations that have legislated similar quotas include France, Spain, Iceland, and the Netherlands.

(5) 43% of Illinois public companies in the Russell 3000 index have zero or only one woman on their boards of directors. Of the Fortune 1000 companies headquartered in Illinois, only 10% have 20% or more of their boards comprised of women, and women hold only 19.5% of the board seats overall.

(6) If measures are not taken to proactively increase the numbers of women serving on corporate boards, studies have shown that it will take decades, as many as 40 or 50 years, to achieve gender parity among directors, including:

(A) A 2015 study conducted by the United States Government Accountability Office estimated that it could take more than 40 years for the numbers of women on boards to match men.

(B) The 2017 Equilar Gender Diversity Index revealed that it will take nearly 40 years for the Russell 3000 companies nationwide to reach gender parity — the year 2055.

(C) Nearly one-half of the 75 largest initial public offerings from 2014 to 2016 went public with no women on their boards.

(7) Further, several studies have concluded that having 3 women on the board, rather than just one or none, increases the effectiveness of boards, including:

(A)(i) According to the study entitled "Women Directors on Corporate Boards From Tokenism to Critical Mass", by M. Torchia, A. Calabṛ, and M. Huse, published in the Journal of Business Ethics in 2011, and a report entitled "Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance", attaining critical mass, going from one or 2 female directors to at least 3 female directors, creates an environment where women are no longer seen as outsiders and are able to influence the content and process of board discussions more substantially.

(ii) Boards of directors need to have at least 3 women to enable them to interact and exercise an influence on the working style, processes, and tasks of the board, in turn positively affecting the level of organizational innovation within the firm they govern.

(B)(i) A 2016 McKinsey and Company study entitled "Women Matter" showed nationwide that companies where women are most strongly represented at board or top-management levels are also the companies that perform the best in profitability, productivity, and workforce engagement.

(ii) Companies with 3 or more women in senior management functions score even more highly, on average, on the organizational performance profile, than companies with no women on boards or in the executive ranks. When there are at least 3 women on corporate boards with an average membership of 10 directors, performance increases significantly.

(b) Definitions. As used in this Section:

"Annual report" means the report submitted annually to the Secretary of State pursuant to this Act.

"Female" means an individual who self-identifies her gender as a woman, without regard to the individual's designated sex at birth.

"Publicly held corporation" means a corporation or foreign corporation with outstanding shares listed on a major United States stock exchange.

(c) Composition of board of directors.

(1) No later than December 31, 2020, a publicly held domestic or foreign corporation the principal address of which, according to the corporation's annual report, is located in Illinois shall have a minimum of one female director on its board. A corporation may increase the number of directors on its board to comply with this Section.

(2) No later than December 31, 2022, a publicly held domestic or foreign corporation the principal address of which, according to the corporation's annual report, is located in Illinois shall comply with the following:

(A) If its number of directors is 6 or more, the corporation shall have a minimum of 3 female directors.

(B) If its number of directors is 5, the corporation shall have a minimum of 2 female directors.

(C) If its number of directors is 4 or fewer, the corporation shall have a minimum of one female director.

(3) No later than December 31, 2021, the Secretary of State shall publish a report on its Internet website documenting the number of domestic and foreign corporations the principal address of which, according to the corporation's annual report, is located in Illinois and who have at least one female director.

(4) No later than July 31, 2023, and annually thereafter, the Secretary of State shall publish a report on its Internet website regarding, at a minimum, all of the following:

(A) The number of corporations subject to this Section that reported being in compliance with the requirements of this Section during at least one point during the preceding calendar year.

(B) The number of publicly held corporations that moved their United States headquarters to Illinois from another state or out of Illinois into another state during the preceding calendar year.

(C) The number of publicly held corporations that were subject to this Section during the preceding year, but are no longer publicly traded.

(D) The number of publicly held corporations that the Secretary of State referred to the Attorney General's Office pursuant to subsection (d) of this Section.

(5)(A) The Secretary of State may adopt rules to implement this Section. The Secretary of State may impose a civil penalty for failure to file information required under this Section. For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted in accordance with this paragraph, the Secretary of State may impose a civil penalty of $10,000.

(B) For the purposes of this paragraph, each director seat required by this Section to be held by a female that is not held by a female during at least a portion of a calendar year shall count as a violation.

(C) For purposes of this paragraph, a female director having held a seat for at least a portion of the year shall not be a violation.

(D) Civil penalties collected in accordance with this Section shall be available, upon appropriation by the General Assembly, for use by the Secretary of State to offset the cost of administering this Section.

(d) Enforcement.

(1) When the Secretary of State has reason to believe a publicly held corporation subject to this Section is not in compliance with this Section or the Secretary of State receives a complaint that a publicly held corporation subject to this Section may not be in compliance with this Section, the Secretary of State shall refer the matter to the Attorney General for investigation and prosecution.

(2) A publicly held corporation subject to this Section that violates this Section shall be subject to a civil penalty not exceed $300,000 for each year the corporation is not in compliance. In determining the amount of the penalty, the appropriateness of the penalty to the size of the business of the publicly held corporation charged and the gravity of the violation shall be considered. The penalty may be recovered in a civil action brought by the Attorney General in any circuit court.

(e) This Section applies to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.

(805 ILCS 5/14.05) (from Ch. 32, par. 14.05)

Sec. 14.05. Annual report of domestic or foreign corporation. Each domestic corporation organized under any general law or special act of this State authorizing the corporation to issue shares, other than homestead associations, building and loan associations, banks and insurance companies (which includes a syndicate or limited syndicate regulated under Article V 1/2 of the Illinois Insurance Code or member of a group of underwriters regulated under Article V of that Code), and each foreign corporation (except members of a group of underwriters regulated under Article V of the Illinois Insurance Code) authorized to transact business in this State, shall file, within the time prescribed by this Act, an annual report setting forth:

(a) The name of the corporation.

(b) The address, including street and number, or rural route number, of its registered office in this State, and the name of its registered agent at that address.

(c) The address, including street and number, or rural route number, of its principal office.

(d) The names and respective addresses, including street and number, or rural route number, of its directors and officers.

(e) A statement of the aggregate number of shares which the corporation has authority to issue, itemized by classes and series, if any, within a class.

(f) A statement of the aggregate number of issued shares, itemized by classes, and series, if any, within a class.

(g) A statement, expressed in dollars, of the amount of paid-in capital of the corporation as defined in this Act.

(h) Either a statement that (1) all the property of the corporation is located in this State and all of its business is transacted at or from places of business in this State, or the corporation elects to pay the annual franchise tax on the basis of its entire paid-in capital, or (2) a statement, expressed in dollars, of the value of all the property owned by the corporation, wherever located, and the value of the property located within this State, and a statement, expressed in dollars, of the gross amount of business transacted by the corporation and the gross amount thereof transacted by the corporation at or from places of business in this State as of the close of its fiscal year on or immediately preceding the last day of the third month prior to the anniversary month or in the case of a corporation which has established an extended filing month, as of the close of its fiscal year on or immediately preceding the last day of the third month prior to the extended filing month; however, in the case of a domestic corporation that has not completed its first fiscal year, the statement with respect to property owned shall be as of the last day of the third month preceding the anniversary month and the statement with respect to business transacted shall be furnished for the period between the date of incorporation and the last day of the third month preceding the anniversary month. In the case of a foreign corporation that has not been authorized to transact business in this State for a period of 12 months and has not commenced transacting business prior to obtaining authority, the statement with respect to property owned shall be as of the last day of the third month preceding the anniversary month and the statement with respect to business transacted shall be furnished for the period between the date of its authorization to transact business in this State and the last day of the third month preceding the anniversary month. If the data referenced in item (2) of this subsection is not completed, the franchise tax provided for in this Act shall be computed on the basis of the entire paid-in capital.

(i) A statement, including the basis therefor, of status as a "minority-owned business" or as a "women-owned business" as those terms are defined in the Business Enterprise for Minorities, Women, and Persons with Disabilities Act.

(j) Additional information as may be necessary or appropriate in order to enable the Secretary of State to administer this Act and to verify the proper amount of fees and franchise taxes payable by the corporation.

(k) A statement providing the self-identified gender of each director for the purposes of Section 8.90 of this Act.

(l) A statement of whether the corporation or foreign corporation has outstanding shares listed on a major United States stock exchange.

The annual report shall be made on forms prescribed and furnished by the Secretary of State, and the information therein required by paragraphs (a) through (d), both inclusive, of this Section, shall be given as of the date of the execution of the annual report and the information therein required by paragraphs (e), (f), and (g) of this Section shall be given as of the last day of the third month preceding the anniversary month, except that the information required by paragraphs (e), (f), and (g) shall, in the case of a corporation which has established an extended filing month, be given in its final transition annual report and each subsequent annual report as of the close of its fiscal year on or immediately preceding the last day of the third month prior to its extended filing month. It shall be executed by the corporation by its president, a vice-president, secretary, assistant secretary, treasurer or other officer duly authorized by the board of directors of the corporation to execute those reports, and verified by him or her, or, if the corporation is in the hands of a receiver or trustee, it shall be executed on behalf of the corporation and verified by the receiver or trustee.

(Source: P.A. 100-391, eff. 8-25-17; 100-486, eff. 1-1-18; 100-863, eff. 8-14-18.)

Section 99. Effective date. This Act takes effect upon becoming law.".