New law requires racial diversity on corporate boards

California Gov. Gavin Newsom signed a law requiring publicly traded corporations headquartered in California to appoint directors from underrepresented communities to their boards, the first law in the country to dictate the racial makeup of corporate boards.

It was inspired by legislation in 2018 that requires publicly held corporations headquartered in the state to diversify their all-male boards. It has faced legal challenges from conservative groups.

“When we talk about racial justice, we talk about power and needing to have seats at the table,” the governor said during a news conference Wednesday.

Nationwide protests over the death of George Floyd prompted pledges from corporate America to close the racial gap. Yet a recent study by USA TODAY found that less than 2% of top executives at the 50 largest companies are Black.

“The new law represents a big step forward for racial equity,” one of the bill’s authors Assemblyman Chris Holden, a Democrat from Pasadena, said in a statement. “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.”

Holden says research shows that public support for social justice often does not lead to lasting reforms needed to boost hiring and retention.

The legislation he co-authored would require people from “underrepresented communities” to have at least one seat on corporate boards in California by the end of 2021.

In 2022, boards with four to nine people must have at least two members from an underrepresented community and boards with nine or more people must have at least three. Companies that don’t comply could face stiff fines.

Underrepresented communities are defined as people who identify as Black, Latino, Native American, Asian American, Pacific Islander, Native Hawaiian, or Alaska Natives. Companies also can appoint directors who identify as gay, lesbian, bisexual, or transgender.

The legislation did not draw significant opposition. No major groups were listed as opponents. Corporate attorney Keith Bishop testified against the bill, saying "it violates the Equal Protection Clauses of the U.S. and California Constitutions and the Commerce Clause of the U.S. Constitution."

Harmeet Dhillon, founder and CEO of the Center for American Liberty, called the law a tax on California corporations.

“From a civil rights perspective and a corporate governance perspective, we ought to be encouraging corporations to have the best and brightest directors and that is really a function of the constituents of the corporation which are the shareholders,” Dhillon said.

“For the state to impose that seems well beyond the state’s appropriate role,” she said. “I don’t know what the governor and his woke agenda have to do with shareholders’ interest. In fact, those are diametrically opposed in California.”

Decades after the Civil Rights movement led to laws banning workplace discrimination, progress in diversifying boardrooms and executive suites has stalled.

Of the 279 top executives at the nation’s 50 largest companies, only five, or 1.8%, were Black, including two who recently retired, the USA TODAY analysis found. Many of these corporations are still led by all-white executives in the top five slots – the CEO, the chief financial officer and three other top-paid executives.

An analysis released by the Latino Corporate Directors Association in July found that 87% of public companies headquartered in the state have no Latinos on their boards even though 39% of residents are Latino. Only 16% of the companies had at least one Black board member.

The 2018 law requiring corporations to add women to boards did not advantage women of color, with nearly 78% of the women appointed to these boards are white women, the association said.

Assemblymember Cristina Garcia, a Democrat from Bell Gardens, said California could no longer wait for corporations to take on that lack of diversity on their own.

“We need more diversity in corporate America,” she tweeted Wednesday. “Gov. Newsom’s signature helps bust open the door for many qualified folks.”

“Now, all of California’s corporate boards will better reflect the diversity of our state.” Chris Holden assemblyman