California Adopts Diversity Requirement for Boards of Directors | Practical Law

California Adopts Diversity Requirement for Boards of Directors | Practical Law

California adopted a new requirement for publicly held companies headquartered in California to have at least one racially, ethnically, or otherwise diverse director on their board by the end of 2021.

California Adopts Diversity Requirement for Boards of Directors

Practical Law Legal Update w-027-7354 (Approx. 4 pages)

California Adopts Diversity Requirement for Boards of Directors

by Practical Law Corporate & Securities
Published on 01 Oct 2020 • California, USA (National/Federal)
California adopted a new requirement for publicly held companies headquartered in California to have at least one racially, ethnically, or otherwise diverse director on their board by the end of 2021.
On September 30, 2020, California Governor Gavin Newsom signed Assembly Bill 979 into law, adopting a new diversity requirement for boards of directors of public companies that is the first of its kind in the US. Under the new law, publicly held domestic and foreign corporations with their principal executive offices in California (as listed on the company's Form 10-K filed with the SEC) must have at least one director from an underrepresented community on their board by the end of 2021. By the end of 2022, these companies may need to have additional directors from underrepresented communities depending on the size of their board:
  • If the board has four or fewer directors, at least one director must be from an underrepresented community
  • If the board has more than four but fewer than nine directors, at least two directors must be from an underrepresented community.
  • If the board has nine or more directors, at least three directors must be from an underrepresented community.
The law defines "director from an underrepresented community" 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.
Companies may increase the number of directors on their boards to comply with the law. Companies can be fined $100,000 for a first violation and $300,000 for subsequent violations.
California's board diversity requirement follows, and is similar to, its 2018 legislation requiring public companies headquartered in California to have female directors on their board by the end of 2019 (see Legal Update, California Passes Law Requiring Public Companies to Include Women on Boards of Directors).