California Acts to Increase Diversity on Corporate Boards

The proposal advanced as state senators took up about two-dozen measures in a rare weekend session while they hurried to make up for weeks of consideration lost because of the pandemic.

The California State Capital building stands in Sacramento, California, U.S., on Tuesday, April 14, 2020.
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California moved closer Saturday to a first-in-the-nation law requiring corporate boards to include racial or sexual minorities, expanding on a new law that sets a similar requirement for including women directors.

Supporters evoked both the coronavirus pandemic that is disproportionately affecting minorities and weeks of unrest and calls for inclusion that followed the slaying of George Floyd in May in the custody of Minneapolis police.

It advanced as state senators took up about two-dozen measures in a rare weekend session while they hurried to make up for weeks of consideration lost because of the pandemic. Most Republican senators again took the previously unprecedented step of voting remotely from their homes or hotel rooms after one of their members tested positive earlier in the week and potentially exposed others during a caucus lunch.

Both the Senate and Assembly are set to meet Sunday as they race to adjourn for the year on Monday.

The diversity bill approved by the Senate would require California-based public corporations to have one board director from an underrepresented community by the end of 2021. It passed on a 26-8 roll call and now returns to the Assembly for a final vote.

Those who qualify would self-identify as Black, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or as gay, lesbian, bisexual or transgender.

The measure would require a minimum of two such directors by the end of 2022 on boards with four to nine directors, and at least three such directors on boards with nine or more directors. Firms that don't comply would face fines of $100,00 for first violations and $300,000 for repeated violations.

"Corporations do not reflect the vast cultural wealth in this state.," said Democratic Sen. Benjamin Hueso of San Diego.

For instance, he said 87% of the state's 662 public companies do not have any Latino directors, yet Latinos make up 39% of the state's population.

“They are severely underrepresented in the boardroom," Hueso said. "California is better than this. We are the most diverse state in the nation, and our corporations need to emulate our diversity.”

Democratic Sen. Scott Wiener of San Francisco, chairman of the Legislature's LGBTQ Caucus, said current boards are often "sort of an old boys network.”

“I think positions should be earned,” countered Senate Republican Leader Shannon Grove of Bakersfield. "In private business, boards should be elected and people should be put on boards that best represent the business, and that can be anybody’s skin color.”

The only official opponent in a legislative analysis was former California commissioner of corporations Keith Bishop. He objected that that bill, coupled with the existing diversity law, would make it more desirable for corporations to pick women who also are members of the underrepresented communities to simultaneously meet both sets of quotas, to the detriment of men or women who do not meet the qualifications in the new bill.

Hueso said adding diversity would improve corporate performance, a similar argument used by supporters of a 2018 law that gave California’s publicly held corporations until this year to add at least one woman to their boards.

The nation's first such law requires boards to have two or more women directors by 2021 for boards of five; and three women by 2021 for boards of six or more.

“I get quite offended when somebody thinks that because there’s a recruitment effort, a proactive effort, to integrate into every aspect of our society, that somehow that means we’re lowering the standard," Democratic Sen. Maria Elena Durazo of Los Angeles said in response to Grove's comments.

Copyright AP - Associated Press
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