California Legislature Passes AB 979 Requiring Public Companies to Add Directors From Underrepresented Communities

On August 31, 2020, the California State Assembly Banking and Finance Committee voted to give final legislative approval to Assembly Bill 979 (AB 979), allowing it to move forward to Governor Newsom for signature or veto on or before September 30, 2020. AB 979 requires NYSE- and Nasdaq-listed corporations incorporated in California as well as foreign corporations (such as Delaware corporations) headquartered in California to have:

At the close of calendar year 2021:

• At least 1 director from an underrepresented community on their board of directors.

At the close of calendar year 2022:

• At least 3 directors from an underrepresented community if the board of directors’ size then is more than 9 members.
  
  
• At least 2 directors from an underrepresented community if the board of directors’ size then is more than 4 but fewer than 9 members.
  
  
• At least 1 director from an underrepresented community if the board of directors’ size then is 4 or fewer members.

For this purpose, a “director from an underrepresented community” means a director 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.”

Takeaways

Given the rapidly approaching compliance deadlines for AB 979, public companies and their boards of directors should begin contingency planning in the event that AB 979 is signed into law. In recruiting and selecting new directors, the board should follow its normal process for identifying qualified director nominees without regard to their race, gender, or sexual orientation. Additionally, as with Senate Bill 826, which required gender diversity on corporate boards in California, there may be challenges to AB 979 on constitutional and other grounds.