California’s Lonely Effort To Diversify Corporate Boardrooms

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Can California lead the way toward greater diversity in corporate boardrooms or will its efforts further incentivize corporations to leave the state?

In recent years, California has adopted new laws to diversify the faces in publicly traded corporate boardrooms in that state.

California Gov. Gavin Newsom recently signed into law AB-979 which requires  corporations to appoint directors from “underrepresented” communities on their boards by the end of 2121.

In 2018, California required corporations located in the state to appoint at least one woman to their board.

California’s efforts reflect the dismal representation of women and minorities on corporate boards but they also raise questions. What is the best way to effect change? Does this goal require a uniform national approach, with incentives and rewards, so that no single state suffers adverse consequences? Might California have sought out other states as allies, to achieve strength in numbers?

Corporations already are leaving California, which is ranked by The Tax Foundation as 48th in terms of regulatory and business climate. The financial services firm, Charles Schwab, is the latest to announce it is moving its corporate headquarters from San Francisco to Texas, which not only has a lower standard of living but is one of the states that is least friendly to workers.

According to the Los Angeles Times, Newsom said the bill advances racial justice by empowering minorities and ensuring they have “seats at the table.”

But what’s to stop the table from moving to Texas?

California’s new diversity law requires corporate boards with four to nine directors to have at least two members from underrepresented communities on their boards by the end of 2021; boards with nine or more directors must have at least three.

According to the bill an underrepresented community “means an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

Firms that don’t comply face fines of $100,000 for first violations and $300,000 for repeated violations.

A former California commissioner of corporations, Keith Bishop, objected that the bill will make it more desirable for corporations to pick women who also are members of underrepresented communities to simultaneously meet both sets of quotas.

According to the Latino Corporate Directors Association, there are 662 publicly traded companies headquartered in California. Two hundred thirty-three of these companies have all white boards of directors.

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