Corporate boards headquartered in California that do not include a director of color could face fines if Assembly Bill (AB) 979 becomes law. The California State Assembly Appropriations Committee will hear AB 979 a bill that would mandate racial diversity on corporate boards - this week.
The proposed legislation passed the Senate Committee on Banking and Financial Institutions last week.
“It is clear that there's a large pool of prepared people who could serve on boards that are educated, who have work history and experience to be drawn upon and who can bring value to these companies,” said Assemblyman Chris Holden (D-Pasadena), a co-author of the bill. “The numbers don't lie.”
Out of 1,222 new board members of Fortune 100 companies, 77% were white, according to Harvard Law School’s Missing Pieces Report: The 2018 Board Diversity Census of Women and Minorities on Fortune 500 Boards.
“This bill creates a framework for corporate boards to be nudged to be more intentional about how strategic diversity can be,” Holden told the Southern California Record.
The legislation would require publicly-held corporations headquartered in California to have at least one director from an underrepresented community by December 31, 2021, two directors from underrepresented communities for corporations with more than four board members and a minimum of three directors for corporations with more than nine board members by 2022.
“We looked at the bill to try to determine whether or not there were any potential fiscal issues that we needed to be mindful of in terms of cost to the state of California,” Holden said. “Whatever the cost, if any, it would probably be absorbed by the fees that potentially could be charged in the event there's noncompliance from any company. Those fees could come in to help offset the cost.”
Underrepresented directors would include those who are Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian and Alaska Native.
“If you recruit people who represent communities or come from communities that are traditionally disadvantaged for these opportunities, they can bring valuable insight to help broaden the perspective of reaching into a talent pool that can only help the company and so we're hoping that this bill would provide that opportunity,” Holden said.
AB 979 came about as a result of the momentum created by George Floyd’s asphyxiation by a Minneapolis police officer and the resulting global protests, according to Holden.
“Where this bill comes forward is in the moment where the conversation is about racial justice, and as a result of that, this bill creates an opportunity to shine lights in other areas other than what has been the focal point, which is police-community relations and how police interact with people of color in their communities,” he said.
If enacted, companies headquartered in the state would be required to report to the Secretary of State and document how they are meeting the mandates of the bill.
“There is the potential within the bill for a fine to be levied against companies for noncompliance,” Holden said. “In 2024, the Secretary of State would report back to the legislature with the information of what they came up with and determined just how effective this has been. The legislature would then determine whether or not there are deficiencies that need to be addressed and tightened up for stronger compliance.”