Liz Dunzhee wrote yesterday in the Mentor Blog:
I blogged earlier this year (based on an exchange with Keith) that filing the Corporate Disclosure Statement contemplated by California law is not really “required” by any regulation and that there is no real enforcement mechanism.
On Monday, I noted that because California's female director quota law uses the word "shall", it is mandatory. Confused? Here's how I break down the law:
- Because the Section 301.3(a) & (b) provides that publicly held domestic and foreign corporations having their principal executive offices in California (according to their Form 10-Ks) shall have specified numbers of female directors, these quotas are clearly mandatory. Section 15 defines "shall" as mandatory.
- The requirement to have a specified number of female directors is not made voluntary because the Secretary of State has not yet imposed any fines on corporations that do not meet the statutory quota requirements.
- Section 301.3(c) permits, but does not require, the Secretary of State to adopt implementing regulations. To date the Secretary of State has not done so.
- Section 301.3(c)(1)(A) permits, but does not require, the Secretary of State to impose a fine of $100,000 on corporations subject to the law that fail to timely file board information with the Secretary of State "pursuant to a regulation". Because the Secretary of State has not adopted any regulations, she cannot presently impose this fine.
- Section 301.3(c)(1)(B) & (C) authorize fines of $100,000 and $300,000 for first and subsequent violations of the law, respectively. The Secretary of State does not need to adopt regulations in order to impose these fines.
- Publicly traded corporations (defined differently than "publicly held corporations") are required to file a corporate disclosure statement annually with the Secretary of State pursuant Sections 1502.1 & 2117.1 because these statutes use the word "shall". The Secretary of State's corporate disclosure form, SI-PT, permits, but does not require, publicly held corporations to disclose compliance with the female director mandate (The instructions state: "A publicly held corporation may report compliance with the statutory board diversity requirements on its annual Corporate Disclosure Statement.").
- The Secretary of State does not have authority to suspend and the Franchise Tax Board does not have the authority to assess a penalty on publicly traded corporations that fail to file a corporate disclosure statement pursuant to Section 1502.1 or 2117.1. Sections 2204, 2205 and 2206 refer to the failure to file an annual statement, SI-550, pursuant to Section 1502 or 2117. They do not refer to the corporate disclosure statements required by Sections 1502.1 and 2117.1.