Some of you might have heard that California recently (less than 24 hours as of the time I write this) passed a law that requires a certain number of directors on a corporation’s Board of Directors to be female. I’ve already gotten several inquiries about this new law and it’s been less than a day.
In this post, I’m going to summarize what I think are the major pieces of the new law. It’s not going to be a comprehensive summary, of course as I cannot go over every possible aspect of any law. As always, I encourage you to do your own research, consult with your own legal counsel, etc.
This new law arose as California Senate Bill 826 in the 2017-2018 regular session and does basically three things:
- It imposes a dual-level requirement for Boards of Directors with respect to female directors,
- It creates a publication requirement to disclose which companies are and are not in compliance, and
- It imposes fines for non-compliance.
The news has basically described this new law as a requirement to have a certain number of female directors on a company’s Board of Directors. If you read the actual statute (California Corporations Code section 301.3), you’ll discover that there are actually two requirements, hence why I call it a “Dual-Level Requirement.”
The first level is that as of the close of calendar year 2019, every corporation that has its Principal Executive Offices (PEO) in California must have at least one female director on its board. The PEO shall be determined based on what the corporation says in its annual 10-K filing to the Securities and Exchange Commission. Domestic corporations (i.e. those organized under California law) and foreign corporations (i.e. those corporations organized under the laws of another jurisdiction not California but registered to do business in California) are subject to this requirement. A corporation must be publicly-held (i.e. its shares are listed on a major US stock exchange) are subject to this requirement.
This requirement of having at least one female director increases as well which gives rise to the second level of my Dual-Level Requirement. By the end of calendar year 2021, the number of female directors at a publicly-held domestic or foreign corporation must go up according to this schedule:
- If the corporation has six or more directors, at least three of them must be female
- If the corporation has five directors, at least two of them must be female.
- If the corporation has four or fewer directors, at least one of them must be female.
In case you were wondering, “female” is also defined in the new law. Under California Corporations Code section 301.3(f)(1), a “female” is “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.”
The new law also requires the California Secretary of State to publish a list on its website of all domestic and foreign corporations with principal executive offices in California that have at least one female director. This list must be published by July 1, 2019.
Additionally, by no later than March 1, 2020, the California Secretary of State must also publish the following on its website:
- The number of publicly-held corporations subject to the law that were in compliance during “at least one point during the preceding calendar year”,
- The number of publicly-held corporations that moved their US headquarters to California or out of California during the preceding calendar year, and
- The number of publicly-held corporations that were subject to the law during the preceding calendar year, but are now no longer publicly-traded.
If a publicly-held corporation does not comply with the new law, fines can be levied.
- For a first violation, the fine is $100,000.
- For subsequent violations, the fine increases to $300,000.
A fine of $100,000 can also be levied if a corporation subject to this law does not timely file papers detailing information about their Board members. Reading SB 826 right now, it appears the California Secretary of State is to promulgate regulations specifying things like filing deadlines.
Again, the above is intended to be just a summary of the major points of the new law. Your opinion may vary as to what counts as a major point. As always, I encourage you to do your own research and seek your own legal counsel.