Hinshaw's 12 Days of California Labor & Employment Series – Day 3: Racial and Ethnic Diversity at the Forefront for California-Based Publicly Held Corporations

In the spirit of the season—and keeping some semblance of normal—we are using our annual "12 days of the holidays" blog series to address new California laws and their impact on California employers. On this third day of the holidays, my labor and employment attorney gave to me: three French hens and AB 979.

This bill is reminiscent of one we kicked off our annual series with back in 2018, which came in the wake of the #MeToo movement. The bill, SB 826, required any publicly held corporation with its principal office located in California, to include at least one woman director on the corporation's Board of Directors by the end of 2019. It further provided that, by the end of 2021, corporations with five or more directors must include at least two female board members, and corporations with six or more directors must include at least three female board members. While SB 826 addressed gender equality, AB 979 focuses on racial and ethnic diversity.

The year of 2020 has been filled with news involving multiple racially-fueled incidents throughout the country and, subsequently, the Black Lives Matter movement. This has not only underscored the importance of diversity initiatives, but also put them front and center.

Specifically, AB 979 requires any publicly held corporation with its principal office located in California to include a minimum of one director from an underrepresented community. Additionally, by the close of 2022, corporations with more than four directors—but fewer than nine—must have a minimum of two directors from underrepresented communities. A corporation with nine or more directors shall have a minimum of three directors from underrepresented communities. A director from an underrepresented community is defined as an individual who self identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or an Alaskan Native, or, one who self identifies as gay, lesbian, bisexual, or transgender.

Failure to abide by this new law will result in a fine of $100,000 for the first violation. For the second, and any subsequent violation, the amount of the fine increases to $300,000. Notably, AB 979 specifically states that a director from an underrepresented community who has held the seat for at least a portion of the year will not be considered a violation.

The statistics in the bill indicate that there are 662 publicly traded companies headquartered in California. As of 2020, 233 of these have all White Boards of Directors. While it appears many corporations already have some diversity on their Boards of Directors, a large number will need to self-evaluate to ensure compliance with AB 979.

Similar to SB 826, corporations will also need to look at how many directors from an underrepresented community are required. Subsequently, they will need to address the following:

• What written policies may need to be changed?
• What policies may need to be added?
• Will they increase the number of directors?
• Will they reduce the number of directors?
• Will there be term limits?
• How will they find their talent?

Additionally, even though it is not specified, a director from an underrepresented community who is also female should meet the requirements of both SB 826 and AB 979.

Corporations should start addressing these questions and update their policies accordingly to adhere to AB 979. It is strongly recommended they begin sooner rather than later to avoid a rush near the deadline or any potential fines.