California Gender Equity Quota Bill Advances

An effort by several California legislators to impose gender quotas on publicly held corporations will be heard next week by the Banking and Financial Institutions Committee.  SB 826, as amended on April 3, will apply to both California domestic corporations and foreign corporations, as defined in Corporations Code §§ 167 & 171.  In the case of a foreign corporation, the jurisdictional hook is the location of its principal executive office as disclosed on its Form 10-K.  If enacted, corporations would be required to have at least 1 female director by the end of next year.  By December 31, 2021, the quota increases to 2 female directors if the corporation has 5 authorized directors or to 3 directors if the corporation has 6 or more authorized directors.  Corporations that fail to meet these goals would be subject to fines.

The bill raises both equal protection and freedom of speech issues.  The application of gender quotas to foreign corporations also raises commerce clause questions.  The authors also don't seem to understand that corporations do not elect or appoint their own directors.  They are either elected by the shareholders or appointed by the board.  The bill also suffers from numerous technical defects.  For example, it imposes enforcement obligations on the Secretary of State but it is unclear how or when the Secretary of State would determine compliance with the mandate.