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Racial Diversity Law for California Corporation Boards

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Gov. Gavin Newsom

Last month, Gov. Gavin Newsom signed a law that requires publicly traded corporations who have their headquarters in California to appoint directors from “underrepresented communities” to their boards.

“Underrepresented communities” are specifically identified in the law as Black, Latino, Native American, Asian American, Pacific Islander, Native Hawaiian, or Alaska Natives.  Companies also have the option of appointing folks from the LGBTQ communities.

Companies must have at least one person from “underrepresented communities” on their board by the end of 2021.

In 2022, boards with four to nine people are required to have two members from “underrepresented communities” and boards with more than nine members must have a minimum of three people from underrepresented communities.

The penalty for not complying with the racial diversity in California Corporations law is financial.

The law is modeled after a 2018 law for gender diversity on the boards of California Corporations.  Seventy-eight percent of the women appointed after that law went into effect were white.

California is the first state to have such a law based on racial diversity.

Newsom said:  “[w]hen we talk about racial justice, we talk about power and needing to have seats at the table.”

After the  Breonna Taylor/George Floyd/#BlackLivesMatter protests some corporations vowed to voluntarily add racial diversity to their boards.

A USA Today survey found that in 50 of the largest companies in the United States,  less than 2% of the top executives are Black.

The Latino Corporate Directors Association study found that 87% of publicly traded companies in California have no Latinos on their boards.  Of the publicly traded companies in California, 16%  had at least one Black board member.

Thirty-nine percent of the California population is Latinx and 5.8% are Black.

The bill was co-authored by Chris Holden (D-Pasadena) who said:  “[t]he new law represents a big step forward for racial equity.  While some 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.”

Assemblymember Cristina Garcia (D-Bell Garden) added via Twitter:  “[w]e need more diversity in corporate America. . .  Gov. Newsom’s signature helps bust open the door for many qualified folks.”

Apple, Google, Salesforce, Chevron, Wells Fargo, PayPal, Gap, Visa, Netflix, Clorox, Uber, and Facebook are all based in California.

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