California passes law requiring public companies to include women on boards10.04.18
Gov. Jerry Brown signed California Senate Bill 826 into law, which requires publicly held companies whose principal executive offices are located in California to have a minimum of one woman on their boards of directors by the end of 2019.
Thereafter, women’s representation will have to increase based on the law, with what will be codified as Section 301.3 of the California Corporations Code:
“No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following:
(1) If its number of directors is six or more, the corporation shall have a minimum of three female directors.
(2) If its number of directors is five, the corporation shall have a minimum of two female directors.
(3) If its number of directors is four or fewer, the corporation shall have a minimum of one female director.”
It's expected that the new law may face a legal challenge on Constitutional grounds, although nothing has been filed yet. In a signing message, Brown acknowledged that there "have been numerous objections to this bill and serious legal concerns have been raised" that might "prove fatal to its ultimate implementation."
The law does not require California Secretary of State to publish a list of affected companies until July 1, 2019. According to data compiled by Annalisa Barrett of the Corporate Directors Forum, 377 companies will have to add female director(s) their boards in order to be in compliance with SB 826 by December 31, 2021. Furthermore, Ms. Barrett’s research did not include smaller public companies that would not be part of the Russell 3000 index, so it’s possible that the true number of companies that will need to add one or more women to their board of directors could be much higher.
For the avoidance of doubt, the law is only limited to companies listed on a “major United States stock exchange,” such that companies only listed on foreign exchanges or companies quoted on the OTC Markets Group, Inc.’s marketplaces would not be required to comply with the law.
Because of this move, prior to the California Secretary of State’s July 1, 2019 list publication date, all public companies incorporated in California and with executive offices in that state should conduct a review with seasoned legal counsel to determine if their principal executive offices would be considered to be located in California so as not to receive a nasty surprise when the list of companies covered by the law is issued. All the better if such companies are already in compliance with the law at that time.