New Law Mandates Diversity on Corporate Boards in California

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Governor Newsom has signed into law a bill, patterned after California’s ground-breaking gender diversity bill adopted two years ago, requiring publicly-held corporations that have their principal executive offices here, to have at least one director from an underrepresented community on their board by December 31, 2021. No later than December 31, 2022, such corporations must have at least one underrepresented director if their number of directors is four or fewer, at least two underrepresented directors if their number of directors is between five and eight, and at least three underrepresented directors if their number of directors is nine or more.

Under the law, a director from an underrepresented community means someone who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as gay, lesbian, bisexual or transgender.

The failure to timely file board member information with the California Secretary of State pursuant to regulations to be adopted by the agency can result in a fine of $100,000. In addition, a first violation in failing to meet the diversity requirements can result in a fine of $100,000; each violation thereafter can result in a fine of $300,000.

The law is already facing legal challenges, including a claim that the expenditure of taxpayer funds or taxpayer-financed resources on the statute is an unconstitutional quota that violates the California Constitution. The same group that is challenging this new law filed a similar claim two years ago against California’s gender diversity law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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