The California Legislature late Sunday sent Gov. Gavin Newsom a bill that would direct public corporations headquartered in California to appoint minority or gay representatives to their boards of directors. Companies that don’t comply with the law could face fines between $100,000 and $300,000, according to the bill.
“Corporations have money, power and influence,” said bill author Assemblyman Chris Holden, D-Pasadena, in a statement. “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.”
The legislation, AB 979, originally defined under-represented directors as individuals who self-identify as African American, Hispanic and Native American.
It has since been amended to include groups who self-identify as Asian, Pacific-Islander, Native Hawaiian, Alaska Native or who self-identify as gay, lesbian, bisexual or transgender.
“The lack of diversity on California’s boards and upper-level corporate positions is a challenge we urged corporations to address on their own during our time in the Legislature,” said Assemblywoman Cristina Garcia, D-Bell Gardens, who co-sponsored the bill. “It is clear we can no longer wait for corporations to figure it out on their own. By ensuring diversity on their boards, we know the corporations are more likely to both create opportunities for people of color and give them the support to thrive within that corporation.”
The bill would require a corporation to have one director from an under-represented group for companies with less than four members on their board of directors.
Corporations with more than four directors, but fewer than nine, would have a minimum of two under-represented directors. A corporation with nine or more directors would require at least three directors from an under-represented community.
A 2018 McKinsey & Company study of over 1,000 companies in 12 countries found that companies in the top quartile for racial and ethnic diversity were 33% more likely to have higher financial returns.
The law is expected to draw legal scrutiny a similar law, signed by former Gov. Jerry Brown in 2018, faced that required California-based corporations to appoint women to their boards of directors.
Last year, The Pacific Legal Foundation led a lawsuit, which a federal judge dismissed, challenging California’s “woman quota” law on behalf of a shareholder in a security systems manufacturer.
After the passage of the 2018 bill, an analysis of 662 California headquartered, public companies conducted by the Latino Corporate Directors Association found women of color were still under-represented in the state’s boardrooms, particularly Black women and Latinas.
The analysis found that 35% of the boards are all white. Of the 511 public board seats filled by women as of March 1, white women account for 77.9%, followed by Asian women, 11.5%, African American women, 5.3%, and Hispanic women, 3.3%.
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