Gov Signs Law Requiring Corporate Boards To Include Women

The Governor has signed a package of bills “to protect and support women, children and working families across California.”

Among these bills was a closely watched proposal requiring companies principally located in California to include at least one woman on their corporate board of directors.

SB 826 authored by Senator Hannah-Beth Jackson (D- Santa Barbara) and co-authored by Senate President Pro Tem Toni Atkins (D-San Diego) would require publicly held corporate boards, with principal executive offices located in California, to have at least one female director by 2019 and at least three depending on board size by 2021. The bill defines female as an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth. Failure to comply would cost a company $100,000 for a first violation, $300,000 for a second or subsequent violation and $100,000 for failing to timely file board member information.

Sponsored by the National Association of Women Business Owners-California (NAWBO-CA), SB 826 is designed to promote equitable and diverse gender representation on every corporate board. The California Legislative Women’s Caucus (LWC) endorsed SB 826 as one its thirteen 2018 legislative priorities. This isn’t the first time the LWC teamed up with NAWBO-CA to promote women in corporate leadership. In 2013, SCR 62 (Jackson, Resolution Chapter 127), enacted into law, was sponsored by NAWBO-CA and supported by the LWC to urge every publicly held corporation in California to name women to their boards by December 31, 2016. As of that date, less than 20% of the companies headquartered in California had the number of women directors called for in the Resolution. SB 826 is a follow-on measure to now mandate gender parity on corporate boards, setting a precedent unachieved anywhere else in the United States.

According to the sponsor, “California has a responsibility to ensure that women are included in board discussions and decisions that affect corporate actions and profitability.  Research shows that corporations with female directors outperform companies that don’t have women on boards.  Yet, one-fourth of California’s public companies still have no women directors… California would lead the way as the first state in the union to have such a law.  To become a corporate board member is serious business – and it’s a serious business issue.”

Lead by the California Chamber of Commerce, a coalition of over two dozen business groups expressed opposition. The Coalition outlined various arguments noting that, “Gender is an important aspect of diversity, as are the other protected classifications recognized under our laws.  We are concerned that the mandate under SB 826 that focuses only on gender potentially elevates it as a priority over other aspects of diversity. Many of our companies are making significant efforts to address and improve diversity in the workforce by focusing on their hiring practices, training promotion, retention, etc.  Our companies are not focused on only one particular classification, but rather all classifications.  We believe this comprehensive approach is more productive in addressing diversity than a mandated quota that only focuses on one aspect of diversity.”

The coalition also pointed out that there could be serious legal challenges under the equal protection clauses of the U.S. Constitution, the California Constitution, the Unruh Civil Rights Law and the internal doctrine for corporations stating that SB 826 “seeks to manage the directors of publicly traded corporations that have their principal executive offices in California yet are incorporated in another state. The internal affairs doctrine appears to dictate that the laws of the state where the company is incorporated apply for these issues, not the law of where the principal executive offices are located, such as California.  Such confusion and ambiguity will only lead to costly fines as proposed under the bill and potential litigation.”

In his signing message, Governor Brown acknowledged that there “have been numerous objections to this bill and serious legal concerns have been raised. I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation. Nevertheless, recent events in Washington, D.C. —and beyond—make it crystal clear that many are not getting the message.”

He added, “Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”

There are currently 761 publicly traded companies headquartered in California, with the vast majority of those subject to the bill’s provisions. With the enactment of this law, proponents may not be surprised to see forthcoming legal challenges.