Corporate Diversity

California Passes Legislation Requiring Diversity on Corporate Boards

California recently became the first state in the United States to require companies with a significant presence in the state to have women on their corporate boards. This has been in debate in California for many years, and follows similar laws passed throughout Europe.

Reactions to the new law are mixed, and it has received both praise and criticism from different groups. Due to the inclusive nature of the new mandate, it is likely to affect hundreds of companies in California, both small and large.

According to popular indexes, California is home to at least 86 of the 3000 largest companies with no female representation on their board of directors. For companies with some female representation, this law would require those companies to increase the number of female board members, depending on the specific size of the board.

Basics of the Law

The law itself is not complex. Failure by a company to comply with its provisions can end in stiff penalties. The basic provisions of the law are:

  • The law only applies to public companies;
  • All publicly traded company boards with principal executive offices in California must have at least one woman director serving on the board;
  • With boards of five or more members, the company must have at least two women on the board by the end of 2021;
  • The law allows for the creation of new board seats, to not require the replacement of a man on the board;
  • Companies must comply with the new law by the end of 2019;
  • Companies must report their compliance to the California Secretary of State
  • Failure to comply with the law will cause a $100,000 fine for the first offense, and a $300,000 fine for the second offense.

While the law will affect all publicly traded companies, it does not affect privately held companies. One of the stated purposes of the new law is to have start-up companies in Silicon Valley and elsewhere ensure they comply with the law prior to becoming a public company through a public offering.

There is no indication at this point of whether any group or company will take legal action to challenge the constitutionality of this law. Doing so would have its own complications, and would be a difficult business decision for any company willing to support such litigation.

Understanding California’s Legal Landscape

As you can see from this new development, the laws in California are in a constant state of change. The legislative, executive, and judicial branches of government in California are very active. Each works to regulate one of the biggest and most populous states in the Union, and one of the biggest economies in the world. There are many laws, rules, and regulations of which California companies must be aware and remain in compliance.

Your California Law Firm

At The Royse Law Firm, we understand the business landscape in California. We are your company’s legal resource for litigation, corporate counsel, and more. Rely on us to provide you with all your company’s legal needs. Contact us today.

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