California mandates ethnic diversity and LGBT representation on boards

Last month, California became the first state in America to require boards of public companies to include directors from underrepresented communities. This new law adds to California’s existing quota for women on boards of public companies introduced in 2018.  

A “director from an underrepresented community” is defined in Assembly Bill 979  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.”

Public companies with principal executive offices in California must have at least one director from an underrepresented community on their board no later than 31 December 2021. By the close of 2022, they will be required to have at least:

• one director from an underrepresented community, if the board has four or fewer directors
• two directors from an underrepresented community, if the board has more than four but fewer than nine directors
• three directors from an underrepresented community, if the board has nine or more directors.

The California Secretary of State may impose fines for non-compliance. Fines are $100,000 for a first breach or for failing to file board member information with the Californian Secretary of State for reporting purposes. For second and subsequent breaches the fine is $300,000.

The Secretary of State will be required to report publicly including on the number:

• of companies complying with the new law
• of public companies that moved their US headquarters to or from California
• of companies that were subject to this law but are no longer publicly traded. 

Also see our article BlackRock’s Expectations on directors higher than ever