California Takes Steps to Push Gender Equality in the Board Room

Beginning on December 31, 2019, companies with principal executive offices (based on the corporation’s SEC 10-K filing) located in California will be required to have at least one (1) female on their board of directors. See S.B. 826 (Ca. 2018). California is the first state to enact such a measure, although, other countries, such as Germany and Norway, have enacted similar measures. The California law requires:

  • All publicly traded companies (both domestic and foreign) whose principal executive offices are in California must have a minimum of one female (1) on its board of directors by December 31, 2019;
  • By December 31, 2021, the required minimum increases to two (2) female directors if the corporation has five (5) directors, or to 3 female directors if the corporation has six (6) or more directors (if the board has four (4) or fewer directors, the corporation shall have a minimum of one (1) female director);
  • Beginning March 1, 2020, the Secretary of State will publish reports on its web site documenting the compliance of covered corporations.

Penalties for failure to follow the laws provision include:

  • A fine of $100,000 for failure to timely file board member information with the Secretary of State;
  • For a company’s first violation of the law’s requirement, the corporation may be fined $100,000;
  • For a company’s subsequent violations of the law’s requirement, the corporation may be fined $300,000.

In enacting the law, Governor Jerry Brown and the California legislature hope that the requirement will hasten the state’s progress towards gender equality in employment.  As an additional incentive, the legislature cites to various academic and business studies finding that publicly held companies’ performance. In signing the bill into law, Governor Brown addressed a letter to the members of the California State Senate. In the letter, Gov. Brown acknowledged that the bill was controversial and potentially subject to legal challenges in its current form.  However, he insisted that, based on recent events, he believed corporations needed a push to start enacting the reforms needed to achieve gender equality.

While no similar bill is being considered by the Georgia legislature, employers should consider both the business and political benefits of ensuring women are on their boards. Studies show that having a more equal distribution of males and females on the board leads to higher profits, increased innovation, and greater diversity of applicants at all levels. See Erica Hersh, “Why Diversity Matters: Women on Boards of Directors,” Harvard School of Public Health, (July 21, 2016).

~ Author: Holly McDaniel, 2018 ELS Extern, Emory University School of Law, 3rd Year Law Student