California Bill Would Require Corporate Boards to Diversify

California could require greater diversity on corporate boards.

California could require greater diversity on corporate boards. Shutterstock

 

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The measure would require at least one person from an underrepresented community to sit on the board of publicly held corporations in the state.

The California legislature passed a bill this weekend that would mandate diversity on the boards of corporations headquartered in the state. Assembly Bill 979, which would apply only to publicly-held corporations, would require boards to have at least one member of an underrepresented community by the end of 2021. 

Assemblymember Chris Holden, a Democrat who sponsored the bill, told lawmakers before the vote on Sunday that the lack of diversity on corporate boards is a hindrance to racial justice. “Women and minorities are underrepresented across white-collar industries, especially at the managerial and executive levels,” he said. “Corporations have money, power, and influence. If we are going to address racial injustice and inequity in our society, it’s imperative that corporate boards reflect the diversity of our state.”

Members of underrepresented communities include Black Americans, Latinos, Asian Americans and Pacific Islanders, Native Americans, Native Hawaiians, and Alaska Natives. Board seats reserved for underrepresented communities can also go to LGBTQ people. 

In addition to the one new member by 2021, the bill also would require boards to include at least three members from underrepresented communities by the end of 2022 if the board has nine members or more. For boards with five to nine members, there must be at least two members by 2022. 

The bill is similar to a 2018 law that requires at least one woman on every board of corporations headquartered in California. At the time, a quarter of the hundreds of publicly traded companies in the state didn’t have a woman on their board, prompting some lawmakers to say it was time to “burst that man-cave.”

That law has seen significant issues with enforcement. The California Secretary of State, tasked with monitoring corporations for compliance, had trouble tracking down which companies were subject to the mandate and which had complied with the standard by the 2019 deadline. Until companies are obligated to release demographic metrics on their boards, enforcement would be a matter of guesswork, some experts said

In March 2020, California said that at least 43 of the 625 impacted companies did not appoint a woman to the board by the December deadline, and around 300 more companies did not disclose their board composition. An additional 282 companies reported compliance.

During debate, lawmakers said that despite some progress made by the mandate for female representation on boards, racial diversity on corporate boards is still a long way off. The legislature cited studies that found that 80% of new board members at Fortune 500 companies in 2018 were white; in California, 87% of boards were found to have no Latino representation, despite the fact that Latinos made up 39% of the state population. Since the law requiring greater female representation went into effect, just 3.3% of women selected to join California boards were Latina. 

Assemblymember Cristina Garcia, a co-author of the bill with Holden, said that the passage of AB 979 would encourage corporations to fix these metrics, “not just because it’s the law, but because it’s the right thing to do.”

Some lawmakers warned that the bill will likely face legal challenges similar to the lawsuits filed against the 2018 law requiring women on boards. (One of these suits was dismissed, though that decision is being appealed; another is still ongoing).

The only person to testify against the new diversity measures at the bill’s hearing in the  Assembly Banking and Finance Committee was Keith Bishop, an attorney who previously served as the state’s commissioner of corporations. Bishop said that the bill violates the equal protection clauses of the U.S. and California constitutions, the same argument used in the lawsuits against the women’s diversity bill. 

“I believe that AB 979 is divisive, arbitrary and unconstitutional,” Bishop testified. 

Holden, the bill’s sponsor, seemed unfazed by the possibility of legal action. “There’s no question this bill pushes the envelope,” he said. “Legislation that shakes up the status quo, especially when it comes to dismantling systemic racism, will always face challenges.”

The bill is set to go to Gov. Gavin Newsom, who has not said whether or not he will sign it into law.

Emma Coleman is the assistant editor for Route Fifty.

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