California law now mandates board diversity

California Gov. Gavin Newsom signed a bill, A.B. 979, requiring companies to include a certain number of members of minorities on their board of directors last week. This is the first bill of its kind to be signed in the nation. By the end of the year 2021, all public California-based companies must include a minimum of one minority on their board of directors.

The bill requires by the end of 2022 that one member from an underrepresented community must reside on a board of four or fewer, two if the number of directors is more than four but fewer than nine, and three if the number is nine or more.

The law defines a member of an underrepresented community as someone who is “Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, or who self-identifies as gay, lesbian, bisexual or transgender.”

Failure for companies to comply with this law will face fines of $100,000 for first infractions and $300,000 for additional infractions. Corporations must file board information with the Secretary of State. The law will affect over 660 California-based corporations.

This bill complements the law passed in 2018 by former Gov. Jerry Brown which required a certain number of female directors on company boards. Brown’s law has been challenged as unconstitutional for granting different treatment based on gender. There have been two lawsuits filed against the law. 

The recent addition will likely be challenged as well. It is being reviewed by Thomas Fitton, president of Judicial Watch, who also challenged the 2018 law. Fitton told reporters that the new law was a violation of the equal protection clause in the 14th amendment, as it establishes a “quota” for diversity.

The law justifies itself by using the Civil Rights Act of 1964, which allows affirmative action to address discrimination in the past and increase representation. 

Supporters praise the work of politicians fighting against racial injustice in the aftermath of protests for equality catalyzed by the death of George Floyd, Breonna Taylor and Ahmaud Arbery.

The Latino Corporate Directors Association reports that 233 of California’s 662 corporations had an all-white board of directors. 

The tech industry has especially been under-fire.USA Today reports that “top universities turn out [Black] and Hispanic computer science and computer engineering graduates at twice the rate that leading technology companies hire them.”

A study by management firm Mckinsey and Company found that companies with diverse boards outperform non-diverse companies’ profits by 33%.