California corporations would be required to diversify their boards under bill sent to Newsom

SACRAMENTO —  California lawmakers on Sunday sent the governor a bill that would require greater diversity on corporate boards in the state, saying the shortage of people of color on the panels is a hurdle to racial justice.

The Assembly approved a measure that would require publicly held corporations headquartered in California to have at least one director from an underrepresented community by the close of 2021.

Assemblyman Chris Holden (D- Pasadena) modeled his bill on a 2018 law that requires a minimum number of women on corporate boards. He said the lack of Black professionals in the governance of the companies sends a discouraging message.

“Women and minorities are underrepresented across white-collar industries, especially at the managerial and executive levels,” Holden told his colleagues Sunday before the floor vote.

Lawmakers cited a 2018 study by Deloitte and Alliance for Board Diversity that found that out of 1,222 new board members of Fortune 100 companies, 77% were white. In addition, the Latino Corporate Directors Assn. released a survey last month that said 87% of boards for California corporations lack Latino representation.

“Corporations have money, power, and influence,” Holden said. “If we are going to address racial injustice and inequity in our society, it’s imperative that corporate boards reflect the diversity of our state.”

The legislation would require corporate boards to include at least one board member by the end of next year who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as gay, lesbian, bisexual or transgender.

The measure also requires corporate boards, by the end of 2022, to include a minimum of three directors from underrepresented communities if the board has nine members or more. If a board has five to nine members, it must have at least two directors from underrepresented communities.

The state has encouraged corporate boards to become more diverse, but insufficient progress has been made, said Assemblywoman Cristina Garcia (D-Bell Gardens), a co-author of the bill along with Assemblyman David Chiu (D-San Francisco).

“By ensuring diversity on their boards, we know the corporations are more likely to both create opportunities for people of color and give them the support to thrive within that corporation,” Garcia said.

Opponents of the bill include Keith Bishop, a corporate law attorney who previously served as state commissioner of corporations.

Bishop told lawmakers during Sunday’s hearing that the bill violates the equal protection clauses of the U.S. and California constitutions. He said it will adversely impact the participation of male and non-binary persons on corporate boards of directors when combined with the 2018 law requiring more women board members.

“I believe that AB 979 is divisive, arbitrary and unconstitutional,” Bishop told lawmakers.

The legality issue has also been raised by state officials who note that two lawsuits have been filed to challenge SB 826, the 2018 law written by state Sen. Hannah-Beth Jackson (D-Santa Barbara).

An analysis by legislative staff found that the state may have to prove to courts that there is specific discrimination that requires the mandate for underrepresented groups to be included on corporate boards.

“There is enough evidence to show there is discrimination,” Holden responded. “The numbers simply don’t lie.”

The legislative staff report also warned it is likely the Holden bill will face legal challenges similar to those filed against the Jackson bill, which argued that California cannot regulate board membership for firms incorporated in other states, even if they are headquartered in California.

“There’s no question this bill pushes the envelope,” Holden said. “Legislation that shakes up the status quo, especially when it comes to dismantling systemic racism, will always face challenges.”

Garcia said that despite the litigation against Jackson‘s bill, many companies have complied anyway.

“I believe if AB 979 were to become law, we will see similar action by companies, not just because it’s the law, but because it’s the right thing to do,” she said.

Separately, lawmakers also approved SB 973, which requires private employers with 100 or more employees to submit a report annually to the state Department of Fair Employment and Housing with pay data for specified job categories broken down by race, ethnicity and sex.

Garcia said the bill “fights pay discrimination with data, with information, because when it comes to pay equity for women and people of color, we can’t fix what we don’t know.”