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New California Law Requiring Racial Diversity on Corporate Boards of Directors

Nov 5 | 2020  by

By Robert Ranallo of Fausone Bohn, LLP posted in Business on Thursday, November 5, 2020.

California Governor Gavin Newsom signed a one-of-a-kind legislation into law recently. Publicly traded companies headquartered in the State of California, will be required to appoint directors from underrepresented communities to their boards. The first law in the country to dictate the racial representation of corporate boards.

During the press conference for the legislation, Gov. Newsom stated, “When we talk about racial justice, we talk about power and needing to have seats at the table.” Since the death of George Floyd, nationwide protests have prompted pledges from American corporations to close the racial gap.

Chris Holden, a Democrat from Pasadena and a co-author on the Bill says, “the new law represents a big step forward for racial equity… While some corporations were already leading the way to combat implicit bias, now, all of California’s corporate boards will better reflect the diversity of our state.”

Holden mentioned that research shows public support for social justice often does not lead to lasting reforms needed to boost hiring and employee retention. The legislation he co-authored, would require individuals from “underrepresented communities” to have at minimum one seat on corporate boards in California by the end of 2021.

In 2022, boards with four to nine people must have at least 2 members from an underrepresented community and boards with nine or more people must have at minimum three. Stiff fines are intended for companies that do not comply.

So, what classifies as an underrepresented community? Underrepresented communities are defined as people who identify as Black, Latino, Native American, Asian American, Pacific Islander, Native Hawaiian, or Alaska Natives. But companies can also appoint directors who identify as LGBTQ+.

The legislation did not draw major opposition. As there were no groups listed as opponents. But Corporate attorney Keith Bishop testified against the bill, stating “it violates the Equal Protection Clauses of the U.S. and California Constitutions and the Commerce Clause of the U.S. Constitution.”

Though there is opposition coming from Harmeet Dhillon, Attorney and founder/CEO of the Center for American Liberty. Dhillon called the new law a tax on California corporations, and going on to say; “For the state to impose that seems well beyond the state’s appropriate role… I don’t know what the governor and his woke agenda have to do with shareholders’ interest. In fact, those are diametrically opposed in California.”

Do you think legislation like this is necessary and, will it support change or cause more corporations to move their headquarters elsewhere?