California Legislature Passes Bill to Require Diversity on Corporate Boards

Courtesy photo Vaughn Smith for Pixabay 

Sunday, the California Legislature passed a bill that requires diversity on corporate boards in California. The legislation, AB 979, is joint authored by Assemblymembers Chris Holden, Cristina Garcia, and David Chiu, with Eloise Gomez Reyes as principal co-author. The bill requires publicly held corporations headquartered in California to have at least one director from an underrepresented community by the close of 2021 or face fines between $100,000 and $300,000.

“Today, the legislature showed that we can bring solutions to create equity in society,” said Assemblymember Holden.

Soon after the social unrest following the killing of George Floyd, many corporations publicly stated their support for diversity and Black lives. Critics, however, have pointed out that this public support for social justice movements often does not lead to long-term structural change in hiring and retention policies of a diverse staff and leadership. The current statistics are quite stark. The Harvard Law School “Missing Pieces Report: The 2018 Board Diversity Census of Women and Minorities on Fortune 500 Boards” found that out of 1,222 new board members of Fortune 100 companies, 77% were white.

“The lack of diversity on California’s boards and upper level corporate positions is a challenge we urged corporations to address on their own during our time in the Legislature. However, it is clear we can no longer wait for corporations to figure it out on their own. By ensuring diversity on their boards, we know the corporations are more likely to both create opportunities for people of color and give them the support to thrive within that corporation,” said Assemblymember Garcia.

In addition to the 2021 benchmark, AB 979 also requires corporate boards to include two members from underrepresented communities for corporations with more than four members, while corporations with more than nine must have a minimum of three by 2022. The bill defines a director from an underrepresented community 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.

“Corporations have money, power, and influence,” continued Holden. “If we are going to address racial injustice and inequity in our society, it’s imperative that corporate boards reflect the diversity of our state. One great benefit of this action — corporations with ethnically diverse boards have shown to outperform those that lack diversity.”