California's board of directors gender quota bill, SB 826, continues its journey through the legislature. Having passed out of the Senate at the end of last month, SB 826 has already been voted out of two Assembly committees (Banking & Finance and Judiciary).
The bill would require "a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California" to have a minimum of one female director on its board no later than the end of next year. By the end of 2021, the corporation would be required to have a minimum of:
- three female directors, if its number of directors is six or more;
- two female directors, if its number of directors is five; or
- one female director, if its number of directors is four or fewer.
At the Committee on Judiciary hearing yesterday, I understood the bill's co-author, Senator Hannah-Beth Jackson, to say that the bill would not force "white male" directors off corporate boards because corporations could always add a seat. The bill, in fact, provides "A corporation may increase the number of directors on its board to comply with this section".
Let's test Senator Jackson's assertion. Suppose a corporation has four authorized directors and no female directors. By year end 2021, it must replace one of its male or non-binary directors with a female director so that it has at least one female director. Alternatively, it could follow Senator Jackson's suggestion and increase the number of authorized directors. However, SB 826 would then require it to have two female directors since it would then have a five-member board. Thus, it could either replace one of the incumbent non-female directors or increase the size of the board to six. If it chooses the latter, however, SB 826 would then require three female directors. If the corporation did not want to shed any of its non-female directors, it would have to increase the number of directors to seven.
The foregoing demonstrates that a corporation with four board seats filled by non-female directors has a choice between maintaining its current size and removing at least one non-female director or increasing its authorized number of directors to at least seven and appointing three female directors.