Maryland’s New Corporate Diversity Statute
House Bill 1210
If you are doing business in Maryland, by now you have heard about Maryland House Bill 1210 titled, “Corporate Diversity – Board, Executive Leadership, and Mission.” Generally, 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 one million dollars ($1,000,000). The bill went into effect without the governor’s signature on July 1, 2022, pursuant to Article II, Section 17(c) of the Maryland Constitution – Chapter 795. The bill phases in over a two-year period.
What businesses are impacted?
The bill applies to a substantial amount of businesses that receive state grants, state tax credits or state contracts in excess of one million dollars a year. The bill is limited to business entities that are incorporated in the state of 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 also applies prospectively from July 1, 2022 which means it does not apply to any state contract, grant or tax credit applied for, awarded, or approved prior to that date. The Maryland Department of Assessments and Taxation estimates there are 430,000 entities that submit annual reports in-state.
What business entities are excluded from House Bill 1210?
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 entity 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 Trigger
If your business is an organization 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 $1,000,000 or more in a single fiscal year, or you receive a state tax credit totaling $1,000,000 or more in a single fiscal year, or you receive a state contract with a total value of $1,000,000 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 correct. 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 organization. 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 mission. House Bill 1210 also gave the DOC and GOSBA the authority to adopt regulations implementing the bill.
In addition, if your organization triggered the substantive requirements of this bill ($1,000,000 threshold) then you are now required to submit an annual report to the Maryland State Department of Assessments & Taxation to include diversity data.
DOC Proposed Regulations for Implementation
DOC (Maryland Department of Commerce) published regulations to implement the bill. You can find a copy of the regulations here.
Environmental Social Governance (ESG)
If a corporation is focusing on the governance or social component of ESG (Environmental, Social, Governance), and does business with the state of Maryland, House Bill 1210 aids your organization in that endeavor.
Summary
In sum, House Bill 1210 prohibits a business entity from qualifying for certain State benefits, tax credits or contracts unless underrepresented communities as defined in the bill are represented on its board or executive leadership, or demonstrate support for underrepresented communities in its mission. House Bill 1210 requires the DOC and GOSBA to develop and maintain a State Equity Report and requires both to adopt regulations to implement the bill. Finally, the bill requires business entities to include diversity data in an annual report. The outstanding issue is whether this statute and/or its regulation will pass constitutional muster. Time will tell.