Governor Gavin Newsom of California just signed a law that requires publicly traded corporations based in California to appoint directors from those communities which are underrepresented. This is the first law of its kind in the United States. It dictates racial makeup of many corporate boards.
This law was inspired by a 2018 first-of-its-kind legislation that pushes publicly held corporations based in the state to diversify all-male boards. It has faced tons of legal challenges from conservative organizations.
According to the governor, when we talk about racial justice matters, we talk about power, as well as the need to have more seats at the table.
Several protests nationwide over George Floyd’s death prompted pledges from different American corporations in order to close the racial gap. However, USA TODAY found out in a recent study that less than 2% of 50 biggest companies’ top executives are black.
This new law is a huge step towards racial equity, Chris Holden, one of the bill’s authors, said in a statement. While other corporations were already spearheading this to combat bias, now, all of CA’s corporate boards can reflect on the state’s diversity. Holden said that according to research, public support for social justice oftentimes doesn’t lead to lasting reforms. These reforms are needed to improve retention and hiring.
The legislation that he co-authored will require individuals from “underrepresented communities” to have a minimum of one seat on Californian corporate boards by the end of 2021.
By 2022, corporate boards with 4 to 9 people should have at least 2 members from an underrepresented community. Then, boards with 9 or more should have at least 3. The businesses that won’t comply can face stiff fines.
So, what are “underrepresented communities” are defined as individuals who identify as Native Hawaiian, Alaska Natives, Pacific Islander, Asian American, Native American, Latino and Black. Moreover, corporations can choose directors who identify as lesbian, gay, transgender or bisexual.
The legislation didn’t draw opposition. No major groups were officially listed as opponents. Keith Bishop, a corporate attorney, testified against this bill. Meanwhile, CEO, founder and attorney of the Center of American Liberty, Harmeet Dhillon, called this new law a “tax” on California-based corporations.
Dhillon said that from a corporate governance and civil rights perspective, we need to be encouraging corporations to have the brightest directors. For the state to impose something like that is well beyond its appropriate role.
According to USA TODAY, of the 279 top executives at the country’s 50 biggest companies, only 1.8%, or 5, were Black. This includes two professionals who just retired. Many of these companies are still headed by all-white executives in the first 5 slots – the CEO, CFO and other 3 top professionals.
If you’re interested in reading more about how Californians can help their own community during the pandemic, click here.