Last fall, Governor Newsom signed into law Assembly Bill 979 (AB-979) mandating that all California based public company board of directors have at least one non-white board member by the end of 2021. By the end of 2022, boards with five to eight members will be required to have two directors from underrepresented groups and corporations with nine or more directors must have at least three directors from underrepresented communities.
Although public companies have until the end of 2021 or 2022 to make these changes, the replacement of board members can take time. And because AB-979 impacts how board members are removed or replaced, it also necessitates that corporations review and make changes to their bylaws. Where compliance with the law will require the removal of any current board members, companies should be cautious—this type of adverse situation can be risky and expose the corporation to potential liability.
The new law is intended to achieve diversity on corporate boards but does not detail lawful methods for compliance with the requirements. It essentially requires corporations to enact a strict quota system and requires decision-making based on protected classes. It will be interesting to see what legal challenges arise from this. If your company needs advice about diversity in your board of directors, give us a call and we will be happy to help.