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California Bill Would Mandate Gender Quotas For Publicly Traded Companies

Earlier this month, California Senators Hannah-Beth Jackson and Toni G. Atkins introduced a bill, SB 826, that would require a publicly held corporation with its principal places of business in California to have a minimum number of women directors.  The bill defines "publicly held corporation" as a "corporation with outstanding shares listed on the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market".  A foreign corporation that meets this definition would be subject to the requirement "to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated".  

If enacted, the bill would require these corporations to have a minimum of one woman director by December 31, 2019.  If no director retires from the board, or an open seat does not otherwise occur, by that date, the bill requires the board to increase its authorized number of directors by one, and fill that seat with a woman.

By July 1, 2021, a publicly held corporation with its principal place of business located in California would be required to have a minimum of:

  • three women directors if its authorized number of number of directors is six or more;
  • two women directors if its authorized number of directors is five; or
  • one woman director if its authorized number of directors is four or fewer.

The Secretary of State will be required to review compliance annually and will be empowered to fine violators.

Aside from numerous drafting errors, the bill raises a number of interesting questions, including:

  • Would such a requirement be constitutional?
  • Can the requirement be constitutionally applied to foreign publicly held corporations?
  • Will this bill be followed by other bills mandating board composition based on other elements of diversity such as race, sexual orientation, ethnicity, marital status, or age?
  • What about California's new, third gender category (See California Law May Spur Rewriting of Gender Boilerplate)?
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Legislation, Corporate Governance

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