Last month, we summarized the several initiatives that governments and investors are advancing regarding increased diversity in public company boards of directors and workforces. The California proposed legislation we reported on has now become law.
By the end of 2021, California-headquartered publicly traded corporations (either domestic or foreign) will be required to have at least one director from an “underrepresented community.” By the end of 2022, any such board with between five and eight members must have at least two such directors, and any such board with nine or more members must have three such members.
A director from an “underrepresented community” is defined as someone who self-identifies as Black, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or as gay, lesbian, bisexual or transgender.
Fines for noncompliance are stiff – up to $100,000 for the first violation and up to $300,000 for subsequent violations.
Companies needn’t necessarily replace existing directors; rather they can increase board size to comply with the new requirements. The law may be subject to challenge, but in the meantime, companies subject to the new law should begin seeking qualified candidates from those communities for service on their boards. As we also mentioned in our update last month, companies should also begin looking now at necessary bylaw or governance charter amendments in order to accommodate the new requirements.
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