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California Approves Law Requiring More Women on Public Company Boards

Woman_Board

Historically, corporate boardrooms have been dominated by male directors. In response to this, some countries, such as Germany, have imposed legal quotas requiring a certain percentage of female directors on corporate boards. Recently, California became the first U.S. state to take a step in that direction. On September 30, 2018, Gov. Jerry Brown signed Senate Bill 826 into law, a measure that requires certain companies based in California to add women to their board by the end of the next year.

SB-826 does not apply to every California corporation. Rather, it is limited to publicly traded companies–those required to register with the U.S. Securities and Exchange Commission–that have its “principal executive offices” in California. This means a business incorporated in another state may be subject to SB-826 if it lists California as its main business office in its SEC filings.

A corporation subject to SB-826 must, no later than December 31, 2019, have at least “one female director on its board.” And by December 31, 2021, the corporation must have a specified number of female directors, based on the size of its board, as follows:

  • for boards with 4 or fewer members, at least 1 female director;
  • for boards with 5 members, at least 2 female directors; or
  • for boards with 6 or more members, at least 3 female directors.

Corporations that fail to comply with these requirements may be fined $100,000 for a first violation, and $300,000 for any additional violations. The California Secretary of State may also fine a corporation $100,000 if it fails to “timely file board member information” as required by SB-826. The Secretary’s office is also charged with publishing appropriate reports on its website detailing the number of corporations in compliance with SB-826 and other information relevant to the law’s implementation.

Governor Signs Bill Despite Acknowledging “Potential Flaws”

According to the sponsors of SB-826, the “lack of gender diversity on corporate boards” is a significant problem for California businesses. Left unaddressed, the sponsors claim “it will take decades, as many as 40 or 50 years, to achieve gender parity among directors.” At the same time, the sponsors cited numerous surveys that found a positive “correlation between stock performance and the presence of women on a board,” particularly since the 2008 financial crisis. These surveys also suggest that corporations with more female board members “tend to be somewhat risk averse and carry less debt, on average,” and experience a 14 percent growth in net income growth over a six-year period.

At the same time, there are significant legal and constitutional questions surrounding the enforceability of SB-826. Gov. Brown acknowledged this himself in a signing statement, noting the law’s “potential flaws” may “prove fatal to implementation.” That said, the governor emphasized that recent events–notably the controversy surrounding the confirmation of Supreme Court Associate Justice Brett Kavanaugh, who was accused of sexual assault by multiple women–made it “crystal clear” that many people are not taking the issues of sex discrimination in the workplace seriously.

If you have any questions about whether SB-826 applies to your business, you should contact a qualified California employment law attorney right away.

Resource:

leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB826

https://www.employmentrightscalifornia.com/what-is-regarded-as-disability-discrimination/

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