Why Having Your Principal Executive Offices In California Has Become A Risk Factor

Allen Matkins

Allen Matkins

In 2018, California enacted legislation, SB 826, requiring that board of directors of publicly held domestic and foreign corporations have a minimum number of female directors.  Cal. Corp. Code §§ 301.3 & 2115.5.  See California Enacts Novel Female Board Quota Legislation.  Despite the manifold patent constitutional infirmities, the legislature doubled down two years later and enacted a bill, AB 979, requiring domestic and foreign corporations to have minimum number of directors who self identify as being from specific underrepresented communities.  2020 Cal. Stats. ch. 316.  The jurisdictional "hook" for both of these requirements is that the corporation have its principal executive offices, according to its Form 10-K, in California.  Given that companies who violate these laws are subject to civil penalties and possible reputational harm, it should be no surprise that these laws are be disclosed as risk factors.

For example, registration statement on Form S-1 filed this week by a Delaware corporation listing San Francisco as the location of its principal executive offices described both laws and then added the following:

"The current composition of our board of directors does not include a female director.  In order to meet the requirements of applicable California law, we expect to onboard the requisite number of female and diverse directors.  Failure to achieve designated minimum levels in a timely manner will expose us to financial penalties and reputational harm.  We cannot assure that we can recruit, attract and/or retain qualified members of the board and meet gender and diversity quotas as required by California law (provided that such laws are not repealed before the compliance deadlines), which may cause certain investors to divert their holdings in our securities and expose us to financial penalties and/or reputational harm."

I haven't heard of any pending bill that would repeal either of these laws, but there are pending constitutional challenges to both.  

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.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.