California’s New Law: Precedent or Problem?

October 2, 2018
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Precedent or Problem?

California makes history requiring some businesses to add female directors to their board of directors.

The hotly debated law may impact some of the biggest companies in America.

What To Know

California Senate Bill 826

  • Requires publicly-traded, California-based companies to haveA at least 1 female board member by end of 2019 – or face $100K fine.
  • Boards with 5 members must have 2 females; those with 6+ members must have 3 women by end of July 2021.

Why It Matters

  • California: world’s 5th largest economy, others may follow suit.
  • Female quotas exist in European countries like Norway, Germany & France;A CA law is a 1st for U.S.
  • 25% of California’s publicly heldA corporations don’t have women on their boards.
  • Several studies point to better company performance with females on the board.

"I’m not at all convinced it would pass legal muster. …you are saying you need to single out women and get them on boards. The question is can you make that preference & will it hurt men?"

Jessica Levinson, Loyola Law School professor, on why the new California law may be vulnerable to a court challenge. Critics argue it may lead to unqualified candidates receiving the role, simply due to their gender. That said, several studies point to better company performance with females on the board.

Something to Consider

80% of the largest 3,000 companies headquartered in California are incorporated (formed) in Delaware.

Critics of California’s new law say corporations are governed by laws of the state in which they are incorporated, not where the main office is based – and this law will cause confusion & unnecessary fines.

Companies like Apple & Facebook don't yet meet the requirement, set to take effect in the coming years. What do you think of this new law? A precedent or a problem?

by Jenna Lee,