Earlier this week, a bill that would set up mandatory minority minimums on California company boards of directors narrowly passed in the Assembly and Senate, leaving it a signature away from becoming law.
Assembly Bill 979, authored by Assemblyman Chris Holden (D-Pasadena), would require “publicly held companies whose principal executive offices are located in the state” to set aside a certain number of board seats for a member of an “underrepresented community.” Companies with fewer than 4 board seats would need one minority held seat, while companies with 4 to 8 board members must have at least two. Any boards larger than eight members would have to have three or more minority board members.
Should the bill pass, the new law would become active at the end of 2021, with an additional year given for larger boards to find the more minority members needed. Any company that fails to comply by then faces large fines from the office of the California Secretary of State.
Assemblyman Holden wrote the bill earlier this year to address “racial justice and inequality” at the corporate level, aiming to do for minorities what SB 826 did for women after it was passed in 2018. California companies, which need to have similar quotas for women in corporate positions, noticed a 45% leap in the number of women on corporate board seats.
“People of color must have a seat at the table,” said Assemblyman Holden during the Assembly floor vote. “Especially in a state as diverse as California.”
Close votes, amendments made to change controversial definitions
Earlier this year, Assemblyman Holden and other supporters appealed to California businesses by pointing out that more diverse companies tend to outperform those with less diversity.
“Corporations have money, power and influence,” said Assemblyman Holden earlier this year. “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. Corporations with ethnically diverse boards have shown to outperform those that lack diversity.”
While AB 979 had enough support to be passed in both houses, both were close votes. It only passed in the Senate 28-8 with 6 abstentions, with a 56-8-15 abstention margin in the Assembly, with many Republicans and Democrats alike opposing or not voting on the bill.
Many opposing the bill noted that, under the quota system, candidates would be chosen less fairly, less objectively, and less based on skill needed for the job. Outcry from Asian business groups earlier this year of reverse racism due to the bill originally only allowing African Americans, Hispanics, and Native Americans to fall under the underrepresented label led to amending AB 979 during the last few months, winning back many lawmakers who had planned to vote against it.
However, many experts have found that this would lead to almost neutralizing AB 979’s impact.
Many loopholes, ways around AB 979 for companies
“California is diverse already, people forget, and most boards already meet the requirement,” explained business analyst Ken Jackson in an interview with the Globe. “They keep pointing to those Bureau of Labor statistics that say only 31% of African American and 22% of Hispanic people work in a professional capacity, while Whites and Asians are averaging together around 50%.”
“Well guess what? A lot of companies, especially around the Bay Area, already have a lot of Asian Americans in top positions. If they aren’t already on the board, they can easily be moved. That’s why they fought so hard for that amendment to allow Asians – because so many were already up there in many companies.”
AB 979 defines “underrepresented community” members as those who self-identify 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”.
“And there are so many ways around this too,” added Jackson. “Many companies might give someone a board seat to represent, say, a division in the company. While they have the seat, they may have to vote or give an opinion or decision based on what the division says.”
“The big key word is ‘self-identify.’ Many people can claim to be bisexual just to get that extra board seat. How would the state verify this? That’s a very personal question, and due to how gender is treated nowadays, it’s plausible for many, many people. California is also blending very quickly. Many mixed raced people can decide on what works best for them, and many choose to identify as many things.”
“It’s not as cut and dry as the female quota, which did elevate many qualified women up the ladder at the same time nothing changed for many companies because they organically had been selecting the best people for years and already met it. No, AB 979 is a very broken bill, and if it’s signed, we are going to see a lot of these problems come to the forefront. Well, not so much problems as ways companies are going around it.”
AB 979 is now on the desk of Governor Gavin Newsom. He is widely expected to sign the bill into law by the end of September.