October 2, 2018

California’s Board Gender Diversity Law: How Many Companies Impacted?

Recently, Liz blogged about the California Assembly’s passage of Senate Bill 826, which requires exchange-listed companies headquartered in the Golden State to have women on their boards. On Sunday, California Gov. Jerry Brown signed that statute into law.

This excerpt from an article in Sunday’s LA Times summarizes the new law’s mandate:

The new law requires publicly traded corporations headquartered in California to include at least one woman on their boards of directors by the end of 2019 as part of an effort to close the gender gap in business. By the end of July 2021, a minimum of two women must sit on boards with five members, and there must be at least three women on boards with six or more members. Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.

So how many companies are going to need to add women to their boards? Annalisa Barrett has crunched some of the numbers:

I examined Equilar data for the companies headquartered in California which were in the Russell 3000 Index as of June 2017 and found that, based on current board composition, 377 companies will have to add female director(s) their boards in order to be in compliance with SB 826 by December 31, 2021.

– 66 companies would have to add three women to their boards
– 175 companies would have to add two women to their boards
– 136 companies would have to add one woman to their boards

Annalisa notes that there are likely to be many more companies that will need to take action to comply the statute. Many public companies headquartered in California are too small to be in the Russell 3000 – and the majority of microcap companies (i.e., smaller than $300M in market capitalization) don’t  have women on their boards. We’re posting memos in our “Board Diversity” Practice Area.

But Is It Legal? “California Über Alles”

In Gov. Brown’s signing statement, he acknowledged that “serious legal concerns” have been raised about the statute, and that its flaws “may prove fatal to its ultimate implementation.” This recent blog from Cooley’s Cydney Posner reviews some of the statute’s potential constitutional flaws. Here’s an excerpt addressing one of the most frequently cited concerns – the law’s “California Über Alles” provision, which purports to apply its mandate to companies that aren’t incorporated under California law:

You may recall that, generally, the “internal affairs doctrine” provides that the law of the state of incorporation governs those matters that pertain to the relationships among or between the corporation and its officers, directors and shareholders. In case you were wondering how California could profess to control the internal corporate affairs of a foreign corporation, you may not be familiar with the long arm of California’s Section 2115, which purports to apply to foreign corporations that satisfy certain tests related to presence in California (minimum contacts), referred to as “pseudo-foreign corporations.”

Cydney points out that the pseudo-foreign corporations statute used to cause severe problems for law firm opinion committees until the provision was amended to exclude from its application companies listed on the NYSE or Nasdaq. However, the new law expressly applies to these “pseudo-foreign” listed companies.

Cydney says that it is unclear whether courts will view the location of a company’s principal executive office as sufficient to overcome the internal affairs doctrine.  Keith Bishop is skeptical that courts will sign-off on the statute – and this recent blog lays out his reasoning.

Transfer Agents: Market Share Leaders

This “Audit Analytics” blog discusses its annual review of 2018 market share leaders among transfer agents. Here’s an excerpt about the leaders for IPO market share:

AST has moved to the top transfer agent of IPO market share, putting Computershare/BNY Mellon into second. Two transfer agents that were in the top last year, Wells Fargo and Citibank, are not top competitors in the IPO market this year. Instead, Vstock Transfer, who was last in the top in 2016, has reappeared. Another notable change is from Deutsche Bank Trust Co Americas/TA, which has made an appearance in the top five for the very first time.

John Jenkins