Lawyers Examine Latest California Corporate Board Diversity Mandates
Lawyers from Fenwick West describe California’s latest initiative for increased diversity on public company boards in a comprehensive memorandum. Governor Gavin Newsom on September 30, 2020 signed into law a bill that requires publicly held companies headquartered in the state to include board members from underrepresented communities. In 2018 California mandated that corporations headquartered in the state have at least one woman on their boards of directors by the end of 2019 (SB 826), with further future increases required depending on board size. According to the lawyers, a corporation would be deemed to be headquartered in California based on whether its principal executive offices, according to the corporation’s annual report on Form 10-K, are located in California. Companies that fail to comply with the new law could face fines in the six figures, in addition to ramifications to their brand and reputation. The new law specifically requires that by the end of 2021 California-headquartered public companies have at least one director on their boards who is from an underrepresented community, defined as “an 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.” In addition, the law mandates that the number of directors from underrepresented communities be increased by the end of calendar year 2022, depending on the size of board. The Fenwick lawyers write that as with the gender diversity mandate, “the new law contains some open questions and ambiguities that may affect implementation.” For instance, the law may be challenged with arguments under the Equal Protection Clause- and Civil Rights Act as well as other legal doctrines.