San Diego and California corporations are governed by their respective boards of directors. Lawmakers in Sacramento are getting close to passing a new law that would require gender diversification on corporate boards of directors. The proposed law is currently designated as “SB 826.” See Bloomberg News report here. The new law would apply, as of now, only to publicly-held corporations. See text of proposed law here.

San Diego Corporate Law: What Does SB 826 Require?

For the targeted corporations, SB 826 would require that, by December 31, 2019, such corporations would have at least one woman on their board of directors. Then, by the end of 2021, more women would be mandated depending on the size of the board, as follows

  • Four or fewer board members — at least one female
  • Five board members — at least two females
  • Six or more board members — at least three females

The proposed law would apply to the following:

  • Publicly-held companies: Defined as “a corporation with outstanding shares listed on a major United States stock exchange”
  • Whose principal executive offices are located in California: Determined by what is listed on the corporation’s SEC 10-K form
  • To non-California corporations: “Foreign corporations” that are publicly-held and who list a California address on their SEC 10-K form

The proposed law also mandates California law as the choice of law with respect to foreign corporations. Furthermore, the proposed law embraces concepts with respect to gender fluidity by defining “female” as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.”

In terms of penalties, the proposed law allows the California Secretary of State to impose fines for violations of this section in “an amount equal to the average annual cash compensation for the directors of the corporation” for the first violation; and three times that for a second or subsequent violation. A “violation” is defined as this: “… each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year, shall count as a violation.” Likely, this is a safe harbor of sorts covering cases in which a female begins the year as a director, but then resigns, is removed, or is otherwise unable to continue in her role as a director.

SB 826 also mandates certain annual data collections and publications by the Secretary of State.

San Diego Corporate Law: Why is SB 826 Being Proposed?

The text of SB 826 lists a number of reasons for the proposed gender quotas. Essentially, though, it boils down to California law makers being of the opinion that there are not enough women on corporate boards of directors. According to the news report linked above, research with respect to companies listed in the Russell 3000 index showed that about 22% of the companies had all-male boards in 2017; and for the 445 California-based companies in the index, the number was about 26%. Proponents of SB 826 say that all-male boards “… are operating without the benefit of the experience, perspective, and tools that women bring with them to the boardroom.”

Contact San Diego Corporate Law

For further information, contact Michael Leonard, Esq. of San Diego Corporate Law. To schedule a consultation, contact Mr. Leonard via email or call at (858) 483-9200. Mr. Leonard’s law practice is focused on corporate, securities, contract, and intellectual property law for small and medium businesses.

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