October 6, 2020
On September 30, Governor Gavin Newsom signed Assembly Bill (“AB”) 979 into law. The law requires publicly traded companies headquartered in California to diversify their board of directors and have at least one board member from an “underrepresented community” by December 31, 2021.
Corporate boards that have more than 4 members but less than 9 are required to include a minimum of 2 directors from an underrepresented community. For boards with more than 9 members, at least 3 directors from an underrepresented community are required by the close of 2022.
A “director from an underrepresented community” is defined as individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.
The co-authors of the bill including Assemblymembers Chris Holden and David Chiu hope that by integrating the perspectives of underrepresented groups within leadership, more innovation, improved productivity, and better economic outcomes will ensue.
Failure to timely comply with the regulations will result in heavy monetary fines. For the first violation, a company will be fined $100,000 and $300,000 for a second or subsequent violation.
Previous state legislation including Senate Bill (“SB”) 826 falls in line with the new law. Enacted in 2018, public companies with headquarters in California were required to have at least one female board member by the end of 2019. Depending on the number of the company’s board of directors, additional female representation may be required. Similar to SB 826, it is expected that AB 979 will be met with challenges on constitutional grounds.
Many companies, both private and publicly traded, have already taken measures to improve diversity in corporate boardrooms. Reddit co-founder Alexis Ohanian resigned from the board in June urging the company to fill his seat with a Black candidate. In August, Pinterest appointed former Executive Vice President of Harpo Productions, Andrea Wishom, as the company's first Black board member. Other companies such as Lyft, Nextdoor, and PagerDuty plan on following suit.
This article is specific to the laws of the State of California and is intended for informational purposes only. The article should not be construed as legal advice or a legal opinion based on any specific facts or circumstances. For specific questions related to this article, please contact an attorney.
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