Calif. Governor Signs Law Mandating Diversity On Corporate Boards

Topline

 California Governor Gavin Newsom on Wednesday signed into law the most aggressive action to mandate diversity on corporate boards, a bill requiring public companies to appoint at least one board member from an underrepresented community by the end of 2021.

Key Facts

AB-979 increases the diversity quota depending on the size of the board, meaning boards with 5 to 8 directors will have to add two underrepresented members by 2022 and boards with 9 or more have to add three by 2022.

Under the law, California’s Secretary of State will have to submit annual diversity reports and to fine companies $100,000 if they don’t report data to the state, with subsequent violations totaling $300,000.

According to the law, underrepresented board members include those who self-identify as Black, Latino, Asian/Pacific Islander or LGBTQ. 

Key Background

This isn’t the first bill California has passed related to diversity on corporate boards. Former Governor Jerry Brown signed a similar bill in 2018 aimed at increasing the number of women in boardrooms. Since that law went into effect, women accounted for about 45% of new board seats among Russell 3000 companies based in California, compared with about 31% nationwide, according to Bloomberg data.

Chief Critics

The Pacific Legal Foundation, the California Chamber of Commerce and other business groups opposed the 2018 law mandating more women in boardrooms, arguing it violates civil rights doctrine and doesn’t address the root cause of diversity issues. The Chamber did not take a position on AB-979, but the Pacific Legal Foundation is opposed to it for the same reasons. “Nobody’s skin color or sex, or sexual orientation should determine their job opportunities, regardless of the state’s noble intentions,” the group says.

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