Takeaways
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Applies to public companies with a principal place of business in California as disclosed on Form 10-K.
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Requires at least one female director by the end of 2019 and additional female directors by the end of 2021, depending on the size of the board of directors.
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Subject companies should begin the process of recruiting female directors now, in advance of their 2019 annual stockholder meetings.
Discussion
On September 30, 2018, Governor Jerry Brown signed into law a bill that mandates the inclusion of women on certain public company boards of directors. No other state in the country currently requires that corporate boards of directors include women.
The bill 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 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. Additionally, just last month, Institutional Shareholder Services, an advisor to investors on corporate elections, stated that it was considering whether to use gender diversity as a factor for vote recommendations, and that this determination would be made by November 2018 regarding annual stockholder meetings to be held in 2019. As a result, public companies, particularly those subject to the new California law, should begin the process of evaluating the composition of their boards of directors for gender diversity and start recruiting female directors, as needed, prior to their 2019 annual stockholder meetings.
Going forward, the new bill requires 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.
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.
