On September 30, 2018, California Governor Jerry Brown signed legislation that is intended to ensure that public companies headquartered in California have at least one female director. This law, known as SB 826, provides for substantial penalties for noncompliance.

What is SB 826 and what does it do?

SB 826 provides that no later than December 31, 2019, each publicly held corporation—regardless of its jurisdiction of incorporation—with its principal executive offices in California (as disclosed in its Form 10-K) must have at least one female director or be subject to a fine. A "publicly held corporation" is one whose outstanding shares are listed on a major United States stock exchange.

By December 31, 2021, these corporations must have a minimum of:

• three female directors, if they have six or more directors;
• two female directors, if they have five directors; or
• one female director, if they have four or fewer directors.

Are there any reporting obligations?

The California secretary of state must adopt implementing regulations, but it is expected that subject companies will be required to report on the gender composition of their board of directors, and this information will be made public. No later than July 1, 2019, the secretary of state must publish on its website a report documenting the number of companies whose principal executive offices are located in California and who have at least one female director.

No later than March 1, 2020, and then on an annual basis, the secretary of state must publish a report on its website regarding the number of:

• companies subject to SB 826 that were in compliance with the law during at least one point during the preceding calendar year;
• publicly held corporations that moved their U.S. headquarters to California from another state or out of California into another state during the preceding calendar year; and
• publicly held corporations that were subject to SB 826 during the preceding year, but are no longer publicly traded.

What happens to a company that does not comply with SB 826?

Companies that do not comply with SB 826 are subject to a variety of fines, ranging from $100,000 for a first violation or a failure to timely file the required information with the secretary of state, to $300,000 for subsequent violations. A "violation" occurs when a director seat required to be held by a female is not held by a female during at least a portion of a calendar year.

What should be done now?

Although some commentators have expressed concern over the constitutionality of SB 826—for example, related to the interaction of SB 826 with corporate laws of other states—subject companies should begin making preparations to comply in order to avoid fines. SB 826 does permit companies to increase the number of directors in order to comply, but care should be taken to follow proper corporate formalities in doing so.

On a more practical level, companies should monitor the implementing regulations adopted by the secretary of state to understand the necessary reports that need to be filed to demonstrate compliance and report required information. Annual compliance calendars will also need to be updated to include this important filing.