Yep, jews.David A. Bell and Dawn Belt are partners and Jennifer J. Hitchcock is an associate at Fenwick & West LLP. This post is based on their Fenwick memorandum. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here).
AB 979 requires that by the end of 2021 California-headquartered public companies have at least one director on their boards who is from an underrepresented community, defined as “an individual who self‑identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self‑identifies as gay, lesbian, bisexual, or transgender.”
In addition to that initial 2021 requirement, the law mandates that the number of directors from underrepresented communities be increased by the end of calendar year 2022, depending on the size of the board, as follows:
Number of Directors on Board Minimum Number of Directors from Underrepresented Communities
Nine or more --------------------- Three
Five to Eight ---------------------- Two
Four or fewer ------------------- ---- One
A company can comply with the law by adding one or more board seats, rather than removing directors. However, the step-up feature of the requirement, where an increased number of directors from underrepresented communities is required as board size expands, could make that challenging for some smaller boards.
For example, an eight-member all-white board without LGBT representation could satisfy the 2021 requirement by adding a new member who meets the diversity requirements (simultaneously increasing the board size). But that company will find it needs to add two more members who meet the diversity requirements by 2022. That’s because, unless it removes members who don’t meet the requirements, the company would then step up to a board composed of nine or more members, triggering the requirement that it have three members from underrepresented communities. A similar result would hold for a similarly comprised board starting with four members.
Companies that fail to comply will be fined $100,000 for the first violation and $300,000 for each additional violation. Each required director seat not held by a member who meets the diversity requirements will count as a separate violation, but a seat held by a diverse director for at least a portion of the year will be deemed to satisfy the requirement. While the fines are not particularly consequential, they may add up, and the cost of public criticism and embarrassment should not be underestimated (for example, the impact on brand and reputation, recruitment and retention, and investor relations should be considered).