Now that Governor Brown has signed SB 826 into law, companies area beginning to ask about its scope and application. SB 826 imposes quotas on the number of female directors of publicly held corporations. The law applies to domestic and foreign corporations having their principal executive offices, according to their most recent Form 10-K, in California. Some have asked whether corporation incorporated in other countries might be subject to this new law.
California defines a "foreign corporation" as any corporation other than a corporation formed under the laws of California and, in the case of Chapter 21 of the Corporations Code, any business association organized as a trust under the laws of a foreign jurisdiction. New Section 2115.5(a) (which is included in Chapter 21) specifically provides that the quotas apply to a publicly held foreign corporation "to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated". Thus, it would appear that corporations and foreign business trusts organized in other countries could be subject to California's new mandate.
However, many of these corporations will not be "publicly held corporations". Section 2115.5(b) defines a "publicly held corporation" as a "foreign corporation with outstanding shares listed on a major United States stock exchange". Typically, shares of corporations incorporated outside the United States are not listed directly on a stock exchange. Investors wishing to invest in these corporations buy "American Depositary Receipts" or ADRs issued by a depository bank such as BNY Mellon, Citigroup, Deutsche Bank, and JP Morgan. Each ADR represents one or more shares of foreign share or a fraction of a share. A Level 2 ADR program establishes a trading presence on a national securities exchange. Because an ADR represents only a right to receive a share and is not the share itself, foreign corporations with ADRs listed on major U.S. stock exchanges will likely take the position that that they do not have shares listed on a major U.S. stock exchange within the meaning of Section 2115.5(b).
There may be a more fundamental reason why non-U.S. corporations won't be subject to SB 826. I would be surprised if many (or even any) such corporations maintain their principal executive offices in California. Moreover, foreign issuers that are required to file annual reports under the Exchange Act do so on Form 20-F and not Form 10-K. However, the law isn't as clear as it might be in this regard. Section 301.3 includes the executive office location requirement while Section 2115.5 refers only to foreign corporations that are publicly traded corporations. Presumably, the legislature did not intend to impose gender quotas on foreign corporations with not specified connection to California.