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Are Some Publicly Held California Corporations Exempt From The State's Female Board Quota Law?

Corporations Code Section 301.3(a) provides:

"No later than the close of the 2019 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one female director on its board.  A corporation may increase the number of directors on its board to comply with this section."

Although seemingly clear, the statute is a lutulent mess.  It refers to a "publicly held domestic" corporation, but fails to define the term.  Instead, Section 301.3(f)(2) defines "publicly held corporation".  Apparently, the statute's author (Senator Hannah-Beth Jackson) was unaware that the General Corporation Law assigns different meanings to "corporation" (Section 162) and "domestic corporation" (Section 167). 

This statute is further muddied by the fact that it refers to a "corporation's SEC 10-K form" and not a "domestic corporation's or foreign corporation's SEC 10-K form".  Some, but not all, domestic corporations are corporations as defined by the GCL.  However, no foreign corporation is also a corporation under the GCL's definitions.

A more consequential interpretive question is whether the statute applies to all publicly held domestic corporations or only those having a principal executive office in California.  The Secretary of State appears to be of the view that the law does not apply to a corporation organized under the GCL unless it has its principal executive office in California:

"By December 31, 2019, every publicly held corporation listing a California principal executive office on its SEC Form 10-K must have at least one female director on its board of directors."

See Secretary of State Mails Corporate Filing ReminderThis, however, is an interpretation of the statute.  While this may be the correct interpretation, the Secretary of State's office cannot apply an interpretation unless it follows the rule making provisions of California's Administrative Procedure Act.  Cal. Gov't Code § 11340.5.

 

 

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