Applies to public companies with a principal place of business in California as disclosed on Form 10-K.
Requires at least one director from an “Underrepresented Community” by the end of 2021.
Subject companies should begin the process of recruiting new directors now, in advance of their 2021 annual stockholder meeting.

On September 30, 2020, Governor Gavin Newsom signed into law a bill that mandates diversity on certain public company boards of directors. No other state in the country currently requires that corporate boards of directors include individuals from underrepresented classes, and this bill comes on the two-year anniversary of California’s bill mandating female representation on public boards. Additional information on that law can be found in our previous client alert here

The bill, AB 979, requires 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 director from an underrepresented community on its board of directors by the end of 2021. As set forth in the law, an “underrepresented community” includes individuals who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identify as gay, lesbian, bisexual, or transgender. As a result, 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. Public companies, particularly those subject to the new California law, should begin the process of evaluating the composition of their boards of directors for compliance and start recruiting additional directors, as needed, prior to their 2021 annual stockholder meetings.

Going forward, the new bill requires additional directors from underrepresented communities depending on the size of the applicable companies’ board of directors. By the end of 2022, companies subject to the bill would be required to comply as follows:

The bill requires the Secretary of State to publish reports on its website no later than March 1, 2022 (and annual thereafter) documenting the number of corporations in compliance with these provisions.

The bill also authorizes the Secretary of State of California to adopt regulations that would impose fines as follows:

  • $100,000 for failure to timely file board member information with the Secretary of State
  • $100,000 for a first board seat violation
  • $300,000 for a second or subsequent board seat violation

Each director seat that would be required to be held by a director from an underrepresented community, and which is not so held during at least a portion of a calendar year, would constitute a violation under the law. That provision also means that if a director from an underrepresented community holds a seat for only a portion of a year, that seat would not be deemed to be in violation of the new law.

Additional information about the bill, including the legislature’s reasons for passing it, can be found in our previous client alert here, and the full text of the bill can be found here.

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