California Considers Mandate to Include Women on Public Company Boards

The bill, SB-826, noted that 25 percent of California’s public companies in the Russell 3000 index have no women on their boards of directors, and of the remaining companies, women hold only 15.5 percent of the director seats. Additionally, other countries have addressed the lack of gender diversity on corporate boards proactively by requiring that 30 to 40 percent of seats be held by female directors. The Legislature declared in the text of the bill that more women directors serving on boards of directors of publicly held corporations would “boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees….”

The bill would require any publicly held domestic or foreign corporation with its principal executive office in California, according to the company’s annual report on Form 10-K, to have a minimum of one female director on its board of directors by the end of 2019. Notably, this means that any corporation with headquarters in California that has outstanding shares listed on a major U.S. stock exchange would be subject to this mandate, regardless of its state of incorporation. Going forward, the bill would require additional female directors depending on the size of the applicable companies’ board of directors. By the end of 2021, companies subject to the bill with a board of directors of four or fewer would be required to have a minimum of one female director, companies with a board of directors of five would be required to have at least two female directors, and companies with a board of directors of six or more would be required to have at least three female directors. The bill authorizes the Secretary of State of California to adopt regulations that would impose fines for violations of $100,000 for a first violation, and $300,000 for a second or subsequent violation for each director seat required to be held by a female during at least a portion of the applicable calendar year.

The bill is currently under consideration by Governor Jerry Brown, who has until September 30, 2018 to decide whether to sign the bill.

The full text of the bill can be found here.