California corporations must have diverse boards of directors by the end of 2021, under legislation signed Wednesday by Gov. Gavin Newsom.
The new law requires publicly held corporations headquartered in California to have at least one director from an underrepresented community before 2022. Boards with more than four members must have two diverse directors and those with more than nine directors must have at least three diverse members by 2022.
The law comes two years after California enacted a law requiring public corporations headquartered in California and traded on the New York Stock Exchange or Nasdaq to have at least one female board director. Both laws make California the first state in the nation with those requirements for corporate boards.
Assemblymember Chris Holden of Pasadena, a co-sponsor of the diverse boards bill, said in a statement that "while corporations were already leading the way to combat implicit bias, now all of California's corporate boards will better reflect the diversity of our state. This is a win-win as ethnically diverse boards have shown to outperform those that lack diversity," Mr. Holden said.
The legislation, AB979, defines a diverse director as someone who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender.
The text of the corporate diversity bill cited statistics from the Latino Corporate Directors Association that 233 of 662 publicly traded companies headquartered in California had all-white boards, while 16% had an African American member and 10% had a Latino director.
Two years ago, then-Gov. Edmund G. "Jerry" Brown Jr. signed the bill requiring public corporations headquartered in California and traded on the NYSE or Nasdaq to have at least one female board director by Dec. 31, 2019. By the end of 2021, corporations with six or more directors must have three female directors, those with a five-member board must have two female directors and those with four or fewer directors must have one female director.
An analysis of the gender diversity mandate's impact to date by Annalisa Barrett, senior advisor for the KPMG Board Leadership Center, found it led to many female directors joining boards of companies headquartered in California. By the first deadline of Dec. 31, 2019, only 4% of California-headquartered companies had all-male boards, compared with 29% as of June 30, 2018.
The KPMG study also found that 94% of female directors joined as outside directors, and 69% would not be considered overboarded because they serve on only one board.
"Overall, the women added to previously all-male California boards during 2019 bring a wealth of education and experience to their boards," the KPMG analysis said.