Friday, October 2, 2020

California Leads Out Again in Requiring Corporate Boards to Seat Racially or Ethnically Diverse Directors

Yesterday, September 30, 2020, Governor Gavin Newsom (right) of California signed into law legislation that requires California Corporate Boards to include Racially, Ethnically or Otherwise diverse board members by 2021.  This legislation follows the 2018 CA requirement that California Corporations include gender diversity on their Boards.  As reported by Anne Steele in the Wall Street Journal's "California Rolls Out Diversity Quotas for Corporate Boards":

"The new quota is the first of its kind in the U.S. and follows a similar California measure enacted two years ago that mandated female directors on all boards of the state’s public companies. The law is expected to have wide-ranging impact within the state’s borders and beyond, potentially sparking fresh debate and legislative efforts in other parts of the country.  'We have a vision about how this state could be an example for the rest of the country,' said Assemblyman Chris Holden, a co-author of the bill. 'This is an opportunity to get people of color at the table where the decisions are made, where the culture is set.'

Under the new law, individuals who identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who identify as gay, lesbian, bisexual or transgender, would be considered eligible for meeting the requirement."

The bill passed the California House overwhelmingly before being signed into law by Governor Newsom.

hat tip: Austin Reed, 3L-Arkansas Little Rock Bowen School of Law


  1. Professor cummings,

    I am thrilled to hear that California is serving as a forerunner in increasing Corporate Board diversity. In line with what we discussed in class this week, I do wonder if legislation such as this blurs the lines on the role of shareholders in selecting a Corporate Board. One could argue that legislation such as this diminishes a shareholder's ability to exercise this function, one of the primary benefits of becoming a corporate stockholder. While generally this legislation would not cause collisions with this role, my thought is that in a hypothetical situation where shareholders have a consensus pick to fill a Board vacancy (i.e. someone who does not identify as an individual in any of the groups included in this legislation but is the most meritorious candidate) could lead to a requirement that someone who does identify in the included groups but who has no support from shareholder votes to be voted in. Again, I think that this legislation is unquestionably beneficial in bringing forth much needed corporate board diversity-- my above thought is just a situation that struck me as potentially blurring the corporate role and power of the shareholder. I would love to hear your thoughts on this, as my interpretation may be off-base, or this could be something that the California Legislature has taken into account in the legislation itself!
    -Will McGrath

  2. Professor cummings,

    I really want to see the ripple effect of this policy across the nation as time passes. It's not surprising to see a state like California (or NY) take the lead on a progressive policy like this. Boards of Directors are elected to represent shareholder interests. It is a fact that California is a diverse state. By mandating Boards be diverse the California House is ensuring that their constituents are represented in some way. As a result Boards will be required to hear points of view different from the norm (wealthy, white, male). I hope that as a result of this policy Boards affected by the bill begin taking into consideration the opinions of the new diverse members. I also hope that Boards do not fall into the habit of simply creating DEI positions for these new diverse Directors. What are your thoughts on this?

  3. thank you for your comment "unknown." i too am hopeful that this is the beginning of a movement for diversity across corporate boards nationwide/worldwide. i am supportive of gender and racial diversity on corporate boards and feel strongly about worldview diversity as well. corporations can find harvard business school graduates that are female or african american or latinx, who may think and vote along the same lines that their other traditional board colleagues from the harvard business school will vote and make decisions. why not encourage corporate board leadership from laborers, academics, younger leaders, etc. the list goes on. i think different perspectives among board leadership brings better, more incisive decision making and ultimately, i believe, greater profit potential.

  4. Professor cummmings,

    I believe that the California law requiring board diversity is a beneficial and progressive codification of something which should not have to be codified: we should all aspire to promote diversity in our everyday lives and associations; business should be no different. When different worldviews and perspectives have a seat at the table, companies are better able to market to potential customers, which in turn generates growth for the company. I believe that while California's codification of this principle is a step forward, it's also been a movement happening among some of the most profitable and successful corporations in our world today, such as Nike. I am curious to see whether more states adopt similar statutory provisions, and the impact this law will have over the next several years.

    -Sierra Glover

  5. I am proud to see influential states taking steps toward diversification at such a high level. I am glad to see that the 2018 CA requirement is closely followed by this new legislation. This gives me hope that this progressive legislation will keep corporate justice momentum going. I do feel as if our younger generations are "challenging" the status quo unlike previous generations (or simply have a larger platform with social media).

    My concern is that come corporations will execute minimal compliance and the "norm" you have described will still have a hold on control. In my opinion, this diverse board member will need to be a very outspoken and brave diverse member or the board will need to include more than the bare minimum required. RGB's "when there are nine" quote comes to mind.

  6. Like a few others have said, I hope this sort of legislation is enacted in other states as well. Hopefully this will also create a sentiment that a company will not take a company public unless there is diversity on the board (not just 1 board member being diverse). This is something that Goldman Sachs has expressed, which has been effective as of July 1, 2020.

    Currently in California, about 185/531 companies have not meet the requirements of having at least 1 board director that is diverse. There are 423 companies that wouldn't meet this new diversity rule as of right now. I wonder how California will plan to track this information - I have read that it is typically difficult to track racial diversity compared to gender (on a national scale).

    Deepali Lal