California Will Require Corporate Boards to Include Women

Author: David B. Weisenfeld, XpertHR Legal Editor

October 2, 2018

California will become the first state to require publicly held corporations with headquarters in the state to have at least one woman on their board of directors under a law signed this week by Governor Jerry Brown. Hundreds of companies could be affected by this novel law, which includes steep penalty provisions.

The bill mandates that a publicly held domestic or foreign corporation whose principal offices are in California have at least one female director on its board by the end of 2019. It also has additional requirements by the close of 2021, including:

  • If there are six or more directors, the corporation must have at least three female directors;
  • If there are five directors, the corporation must have a minimum of two female directors; and
  • If there are four or fewer directors, the corporation must have at least one female director.

By July 1, 2019, the California Secretary of State will publish a report on its website documenting the number of domestic and foreign corporations whose principal offices are located in California and that have at least one female director.

For a failure to comply with this law, an employer will be subject to a fine of $100,000, and a $300,000 fine for a second or subsequent violation. Each director seat required to be held by a female, which is not held by a female for at least a portion of the calendar year, will count as a violation.

One fourth of California's public companies currently have no women on their boards of directors; and for the rest of the companies, women hold only about 15% of the board seats.

In signing the law, Governor Brown wrote with a rhetorical flourish, "Given all the special privileges that corporations have enjoyed for so long, it's high time corporate boards include the people who constitute more than half the 'persons' in America."

While the new law figures to accelerate boardroom diversity efforts, several business groups opposed its passage, and it may face a legal challenge. For instance, the California Chamber of Commerce has said requiring a publicly traded corporation to satisfy quotas regarding the number of women on its board, or face significant penalties, is unconstitutional.