California Gov. Gavin Newsom signed Wednesday a first-in-the-nation bill requiring every corporate board to include at least one director from an “underrepresented community,” a year after the state did the same for women.
The law requires publicly held corporations to have at least one diverse director on their boards by Dec. 31, 2021, and boards with nine or more directors must have at least three such directors by Dec. 31, 2022.
“Today’s actions build on the Newsom Administration’s work to acknowledge historic wrongs and combat structural racism and bias in our institutions,” said the governor’s office in a statement.
Under AB 979, individuals from “underrepresented communities” are defined as those who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or gay, lesbian, bisexual or transgender.
“The new law represents a big step forward for racial equity,” said Democratic Assemblymember Chris Holden, who jointly sponsored the bill. “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. This is a win-win as ethnically diverse boards have shown to outperform those that lack diversity.”
San Francisco lawyer Harmeet Dhillon, the Republican National Committeewoman from California, said the law has “the same flaws as its woke predecessor for women,” the 2019 law that requires corporate boards to include female directors.
“I support the idea of boards being diverse and reflecting the community of consumers, but Gavin Newsom really has nothing to do or say about it, nor should the state,” said Ms. Dhillon. “There are well-established mechanisms for activist shareholders to demand change in companies, demand divestment, demand leadership and management, and these have worked well for over a century.”
The so-called “gender quota” law has been challenged in court by Judicial Watch.
Ms. Dhillon, CEO and founder of the Center for American Liberty, predicted the law would drive more companies from the Golden State.
“Every time Gavin Newsom and the state legislature impose additional nonsensical and/or costly requirements on the state that limit shareholder freedom and profit, that make it more difficult to do business and comply with myriad regulations, they drive another tax-paying company and jobs out of California,” she said.
The newly signed law also requires corporations with at least four board members to have two minority board directors by the end of 2022.
About 625 companies have their headquarters in California. A 2018 study found that 77% of new board directors on Fortune 100 companies were White.
“The lack of diversity on California’s boards and upper level corporate positions is a challenge we urged corporations to address on their own during our time in the Legislature,” said Democratic Assemblymember Christina Garcia. “However, it is clear we can no longer wait for corporations to figure it out on their own.”
Ms. Dhillon said the two diversity mandates could lead to confusion, given that both women and transgender women are included.
“There’s a lot of tension between ‘women are discriminated against’ and ‘women are entitled to special rights’ compared to the position ‘there is no gender in gender fluid,’” she said. “So I’m not sure that’s been thought through.”