BY PAMELA LANGHAM, ESQ.
IF YOU ARE DOING BUSINESS IN MARYLAND,
by now you have likely heard about Maryland House Bill 1210, “Corporate Diversity—Board, Executive Leadership, and Mission.” The bill requires certain business entities to either demonstrate membership of underrepresented communities in its board or executive leadership, or demonstrate support for underrepresented communities in its mission, in order to qualify for a “state benefit” greater than or equal to $1 million. The bill went into effect without the governor’s signature on July 1, 2022, and phases in over a two-year pe- riod. The outstanding issue is whether this statute and/or its regulation will pass constitutional muster. Time will tell.
What businesses are impacted?
The bill applies to a substantial number of businesses that receive state grants, state tax credits, or state contracts in excess of $1 million a year. The bill is limited to business entities that are incorporated in Maryland or registered to do business in the state; a corporation, foundation, school, hospital or other legal entity for which none of the earnings inure to the benefit of any private shareholder; or individual holding an interest in the entity. The bill applies prospective- ly from July 1, 2022. The Maryland Department of Assess- ments and Taxation (MDAT) estimates there are 430,000 entities that submit annual reports in-state.
The bill does not apply to
sole proprietorships, limited liability companies owned by a single member, privately held companies if at least 75% of the company’s shareholders are family members, or an en- tity with an annual operating budget or annual sales of less than $5,000,000 and does not qualify for a state benefit.
One Million Dollar Cap
If your business is an organi- zation that receives state benefits, then the requirements of the bill may apply to you.
The state benefit you receive triggers compliance if the state capital grant totals $1 million or more in a single fiscal year, or you receive a state tax credit totaling $1 million or more in a single fiscal year, or you receive a state contract with a total value of $1 million or more. According to the Maryland Chapter of the NAIOP Commercial Real Estate Development Association, in 2020, 1,940 vendors in the state of Maryland received payments of $1 million or more and more than 12,000 entities received state grants of more than $1 million. It appears that the bill applies to a sizable chunk of entities in Maryland.
Definition of “Underrepresented Communities”
The bill defines “underrepresented communities” as those whose members self-identify as: Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American,
Native Hawaiian, Alaska Native, or any combination of one or more of these listed racial or ethnic groups.
Required Reporting for All Businesses
The bill requires the Department of Commerce (DOC) along with the Governor’s Office of Small, Minority, and Women Business Affairs (GOSBA) to develop a state equity report containing diversity data that all businesses are now going to be required to file with the state. Yes, that is cor- rect. Even if your business does not trigger the substantive requirements of the bill, your business will be required to submit data to the state regarding diversity in your organ- ization. The data compiled for the report must include:
the membership of underrepresented communities on the businesses board or executive leadership and the support of underrepresented communities in the businesses mis- sion. The DOC and GOSBA were also given the authority in
the bill to adopt regulations implementing the bill.
Moreover, if your organization triggered the substantive requirements of this bill, you are now required to submit an annual report to MDAT to include diversity data.
DOC Proposed Regulations for Implementation
The Maryland Department of Commerce has published regulations to implement the bill.
Environmental Social Governance (ESG)
If a business is focusing on the governance or social component of ESG, and does business with the state of Maryland, HB 1210 actually aids your organization in that endeavor.