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AB-979 Corporations: boards of directors: underrepresented communities.(2019-2020)

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Date Published: 07/28/2020 09:00 PM
AB979:v95#DOCUMENT

Amended  IN  Senate  July 28, 2020
Amended  IN  Senate  July 14, 2020
Amended  IN  Senate  June 29, 2020
Amended  IN  Assembly  January 06, 2020

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 979


Introduced by Assembly Members Holden and Cristina Garcia
(Principal coauthor: Assembly Member Reyes)

February 21, 2019


An act to amend Section 301.3 of, and to add Sections 301.4 and 2115.6 to, the Corporations Code, relating to corporations.


LEGISLATIVE COUNSEL'S DIGEST


AB 979, as amended, Holden. Corporations: boards of directors: underrepresented communities.
Existing law, no later than the close of the 2019 calendar year, requires a publicly held domestic or foreign corporation whose principal executive office is located in California to have a minimum of one female director on its board. Existing law, no later than the close of the 2021 calendar year, additionally requires such a corporation with 5 directors to have a minimum of 2 female directors and such a corporation with 6 or more directors to have a minimum of 3 female directors. Existing law authorizes the Secretary of State to impose fines for violations of these provisions, as specified, and requires the moneys from these fines to be available, upon appropriation, to offset the cost of administering these requirements.
This bill would require, no later than the close of the 2021 calendar year, such a corporation to have a minimum of one director from an underrepresented community, as defined. The bill would require, no later than the close of the 2022 calendar year, such a corporation with more than 4 but fewer than 9 directors to have a minimum of 2 directors from underrepresented communities, and such a corporation with 9 or more directors to have a minimum of 3 directors from underrepresented communities.
Existing law requires, on or before specified dates, the Secretary of State to publish various reports on its internet website documenting, among other things, the number of corporations in compliance with these provisions.
This bill would require, on or before specified dates, the Secretary of State to include in those reports certain information, including, among other things, the number of corporations in compliance with the bill’s provisions. The bill would authorize the Secretary of State to impose fines for violations of the bill’s provisions, as specified, and would require the moneys from these fines to be available, upon appropriation, to offset the cost of administering these requirements.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares as follows:
(a) According to the United States Bureau of Labor Statistics, only 31 percent of African Americans and 22 percent of Latinos worked in management, professional, and related occupations while 54 percent of Asians and 41 percent of Whites worked in the same occupation.
(b) According to 2018 data from Deloitte and the Alliance for Board Diversity, the percentages of Fortune 500 company board seats held by people identified as African American/Black, Hispanic/Latino(a), and Asian/Pacific Islander were 8.6 percent, 3.8 percent, and 3.7 percent, respectively.

(b)

(c) The United States Bureau of Labor Statistics also reported that in the year 2019, 90 percent of chief executives were White.

(c)

(d) According to United States Equal Employment Opportunity Commission (EEOC), “employment in computer science and engineering is growing at twice the rate of the national average. These jobs tend to provide higher pay and better benefits, and they have been more resilient to economic downturns than other private sector industries over the past decade. In addition, jobs in the high tech industry have a strong potential for growth.”

(d)

(e) The commission also found that the high tech sector employs about one-fourth of United States professionals and about 5 to 6 percent of the total labor force.

(e)

(f) Analysis has shown that highly ranked universities graduate African American and Latino computer science and computer engineering majors at twice the rate that leading technology companies hire them.

(f)

(g) The EEOC study shows that compared to overall private industry, the high tech sector employed a larger share of Whites (63.5 percent to 68.5 percent), Asian Americans (5.8 percent to 14 percent), and a smaller share of African Americans (14.4 percent to 7.4 percent), Hispanics (13.9 percent to 8 percent).
(h) The study also showed that in the tech sector nationwide, Whites are represented at a higher rate in the executives category, which typically encompasses the highest level jobs in the organization.

(g)

(i) According to a study by the EEOC, fewer than 1 percent of Silicon Valley executives and managers are African American.
(j) According to a report by the Ascend Foundation, Asian Americans were the least likely to be promoted to manager or executive positions in California.

(h)

(k) According to a report by McKinsey and Company, for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes rise 0.8 percent.

(i)

(l) A study by Dalberg Global Development Advisors found that the high tech industry could generate an additional $300–$370 billion each year if the racial or ethnic diversity of tech companies’ workforces reflected that of the talent pool.

(j)

(m) Therefore, it is the intent of the Legislature to require, by January 2023, every publicly held corporation in California to achieve diversity on its board of directors by having a minimum of directors from underrepresented communities on its board, as specified in this measure.

SEC. 2.

 Section 301.3 of the Corporations Code is amended to read:

301.3.
 (a) No later than the close of the 2019 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one female director on its board. A corporation may increase the number of directors on its board to comply with this section.
(b) No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following:
(1) If its number of directors is six or more, the corporation shall have a minimum of three female directors.
(2) If its number of directors is five, the corporation shall have a minimum of two female directors.
(3) If its number of directors is four or fewer, the corporation shall have a minimum of one female director.
(c) No later than July 1, 2019, the Secretary of State shall publish a report on its internet website documenting the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California and who have at least one female director.
(d) No later than March 1, 2020, and annually thereafter, the Secretary of State shall publish a report on its internet website regarding, at a minimum, information required by subdivision (d) of Section 301.4 and all of the following:
(1) The number of corporations subject to this section that were in compliance with the requirements of this section during at least one point during the preceding calendar year.
(2) The number of publicly held corporations that moved their United States headquarters to California from another state or out of California into another state during the preceding calendar year.
(3) The number of publicly held corporations that were subject to this section during the preceding year, but are no longer publicly traded.
(e) (1) The Secretary of State may adopt regulations to implement this section. The Secretary of State may impose fines for violations of this section as follows:
(A) For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000).
(B) For a first violation, the amount of one hundred thousand dollars ($100,000).
(C) For a second or subsequent violation, the amount of three hundred thousand dollars ($300,000).
(2) For the purposes of this subdivision, each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year, shall count as a violation.
(3) For purposes of this subdivision, a female director having held a seat for at least a portion of the year shall not be a violation.
(4) Fines collected pursuant to this section shall be available, upon appropriation by the Legislature, for use by the Secretary of State to offset the cost of administering this section.
(f) For purposes of this section, the following definitions apply:
(1) “Female” means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.
(2) “Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange.

SEC. 3.

 Section 301.4 is added to the Corporations Code, to read:

301.4.
 (a) No later than the close of the 2021 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall have a minimum of one director from an underrepresented community on its board. A corporation may increase the number of directors on its board to comply with this section.
(b) No later than the close of the 2022 calendar year, a publicly held domestic or foreign corporation whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California shall comply with the following:
(1) If its number of directors is nine or more, the corporation shall have a minimum of three directors from underrepresented communities.
(2) If its number of directors is more than four but fewer than nine, the corporation shall have a minimum of two directors from underrepresented communities.
(3) If its number of directors is four or fewer, the corporation shall have a minimum of one director from an underrepresented community.
(c) No later than July 1, 2021, the Secretary of State shall include in its report required by subdivision (d) of Section 301.3, the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California and who have at least one director from an underrepresented community.
(d) No later than March 1, 2022, and annually thereafter, the Secretary of State shall include in its report required by subdivision (d) of Section 301.3, at a minimum, all of the following:
(1) The number of corporations subject to this section that were in compliance with the requirements of this section during at least one point during the preceding calendar year.
(2) The number of publicly held corporations that moved their United States headquarters to California from another state or out of California into another state during the preceding calendar year.
(3) The number of publicly held corporations that were subject to this section during the preceding year, but are no longer publicly traded.
(e) (1)   The Secretary of State may adopt regulations to implement this section. The Secretary of State may impose fines for violations of this section as follows:
(A) For failure to timely file board member information with the Secretary of State pursuant to a regulation adopted pursuant to this paragraph, the amount of one hundred thousand dollars ($100,000).
(B) For a first violation, the amount of one hundred thousand dollars ($100,000).
(C) For a second or subsequent violation, the amount of three hundred thousand dollars ($300,000).
(2) For the purposes of this subdivision, each director seat required by this section to be held by a director from an underrepresented community, which is not held by a director from an underrepresented community during at least a portion of a calendar year, shall count as a violation.
(3) For purposes of this subdivision, a director from an underrepresented community having held a seat for at least a portion of the year shall not be a violation.
(4) Fines collected pursuant to this section shall be available, upon appropriation by the Legislature, for use by the Secretary of State to offset the cost of administering this section.
(f) For purposes of this section, the following definitions apply:
(1) “Director from an underrepresented community” means an individual who self-identifies as Black, African American, Hispanic, or Native American. Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native.
(2) “Publicly held corporation” means a corporation with outstanding shares listed on a major United States stock exchange.

SEC. 4.

 Section 2115.6 is added to the Corporations Code, to read:

2115.6.
 (a) Section 301.4 shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.
(b) For purposes of this section, a “publicly held corporation” means a foreign corporation with outstanding shares listed on a major United States stock exchange.