California Governor Jerry Brown recently signed Senate Bill 826 into law which requires publicly-held corporations with principal executive offices in California to have a certain number of females on their boards of directors.
The new law sets forth phased requirements for these corporations. By the end of 2019, each covered company must have at least one female director. By the end of 2021, this number increases to three female directors if the company has six or more directors in total. (For boards with five or fewer directors, the numbers decrease.)
If companies fail to comply with the new law, the California Secretary of State is authorized to impose significant penalties: $100,000 for a first-time violation, and $300,000 for subsequent violations.
The bill highlights the underrepresentation of women on boards of directors, identifying that “[o]ne-fourth of California’s public companies in the Russell 3000 index have NO women on their boards of directors; and for the rest of the companies, women hold only 15.5 percent of the board seats.” The bill lists economic advantages to having female directors and cites a study which “found that companies with more women on their boards are more likely to ‘create a sustainable future’ by, among other things, instituting strong governance structures with a high level of transparency.”
In connection with the new law, Governor Brown recognized objections, but stated that “…recent events in Washington, D.C.–and beyond–make it crystal clear that many are not getting the message” and “[g]iven all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”