California requires corporate boards to have directors from underrepresented communities
ComplianceOctober 08, 2020

California requires corporate boards to have directors from underrepresented communities

California, which was the first state to require a minimum number of females on the boards of directors of domestic and certain foreign publicly held corporations headquartered in the state, has now become the first state to also require those corporations to have directors from underrepresented communities on their boards.

Assembly Bill 979 adds a new Sec. 301.4 to the Corporation Code. Below are some details.

Minimum director requirement

AB 979 provides that no later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation's SEC 10-K form, are located in California shall have a minimum of one director from an underrepresented community on its board. A corporation may increase the number of directors on its board to comply with Sec. 301.4.

No later than the close of the 2022 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation's SEC 10-K form, are located in California shall comply with the following:

(1) If its number of directors is 9 or more, the corporation shall have a minimum of 3 directors from underrepresented communities.

(2) If its number of directors is more than 4 but fewer than 9, the corporation shall have a minimum of 2 directors from underrepresented communities.

(3) If its number of directors is 4 or fewer, the corporation shall have a minimum of 1 director from an underrepresented community.

Definition of underrepresented community

"Director from an underrepresented community" means 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.

Violations and penalties

AB 979 states that each director seat required to be held by a director from an underrepresented community, which is not held by a director from an underrepresented community during at least a portion of a calendar year, shall count as a violation. A director from an underrepresented community having held a seat for at least a portion of the year shall not be a violation.

It also provides that the Secretary of State may impose fines for violations of the section as follows:

(A) For a first violation the amount of $100,000.

(B) For a second or subsequent violation the amount of $300,000.

(C) For failure to timely file board member information with the Secretary of State pursuant to a regulation to be adopted, the amount of $100,000.

Applicability to foreign corporations

The bill states that Sec. 301.4 shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated. It also states that for the purposes of this section, a "publicly held corporation" means a foreign corporation with outstanding shares listed on a major United States stock exchange.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.
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