California Governor Gavin Newsom (D-CA) signed legislation this week requiring, among other things, that California-based companies include at least one board director from an “underrepresented community” by the end of 2021.
Details of the legislation: The bill defines “underrepresented community” to mean an individual identifying as either an ethnic minority or a member of the LGBTQ community. Similar to existing California requirements regarding the number of female directors on a board, the new mandate takes a stepped approach: companies may have to increase the number of underrepresented directors to two or three (based on size of the board) by 2022. Violations may incur fines up to $300,000.
Will it help? The gender board mandate in California has been successful in increasing the number of women directors on boards in that state; nationwide, there are fewer all-male boards left and none in the S&P 500. However, according to the Wall Street Journal, more than 35% of public companies in California lack a director from an underrepresented community—and most companies do not disclose the race or ethnicity of individual directors on the board. Given the tight timelines laid out in the bill, the question is whether companies will be able to comply in ways that support sustained diversity and inclusion for the long-term.