California, board, corporate, directors

California Bill Would Mandate Racial Diversity on Corporate Boards

A recent California bill would mandate diversity in corporate boards for all companies headquartered within the state. The bill would ban all-white corporate boards and comes on the heels of a 2018 law that mandated women hold seats in all corporate boards.

This racial diversity bill AB 979 defines “underrepresented communities” as those who self-identify as Black, Hispanic/Latinx, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native.

Related story: Research Roundup: Latinas Only Make Up 3.3% of California Corporate Boards

There are more than 600 publicly held companies headquartered in California, and under AB 979, each of them would be required to have at least one person of color serving on its board. Democrats Chris Holden and Cristina Garcia introduced the legislation with Eloise Gómen Reyes as a principal co-author. DiversityInc’s 2020 Top 50 Companies for Diversity and Hall of Fame is made up of 24.3% people of color, 7.7% women of color and 16.6% men of color. Nationally, 19.5% of board members of Fortune 100 companies are people of color, according to a 2018 report.

“Corporations have money, power, and influence,” Holden said in a statement. “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.”

Some California-headquartered businesses, such as Wells Fargo (No. 11 on the 2020 DiversityInc Top 50 Companies for Diversity list), already have at least one person of color on their boards, but others are all white. If enacted, the law would be the first of its kind. It will reach the Senate Banking and Financial Institutions committee Aug. 13. If it passes this hurdle, the Legislature has until the end of the month to pass it unless Gov. Gavin Newsom calls a special session.

Both the California Chamber of Commerce and the California Manufacturers and Technology Association have not spoken publicly on this bill, however, they opposed the SB 826 gender diversity bill in 2018, which mandated that publicly-held corporations with headquarters in California must have at least one woman on their boards.

Related story:  Research Roundup: What’s Keeping Women from the C-Suite?

Some opponents say that instead of being empowering, AB 979 reduces people of color to quota hires. However, supporters argue the bill is needed because of how widespread racism is.

Under the racial diversity bill, requirements for diversity would ramp up by 2022. For corporations with nine or more people sitting on their boards, at least three seats are to be filled by people of color by the end of the year. For those with five to eight board seats, there would need to be at least two people of color. Companies that don’t comply would be fined $100,000.

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