The California legislature has passed a bill aimed at addressing the lack of diversity on corporate boards. The bill, AB-979, jointly authored by Assembly Members Chris Holden, Cristina Garcia, and David Chiu, and with Eloise Gomez Reyes as principal co-author, would require boards of corporations headquartered in California to have board members from underrepresented communities, beginning at the end of 2021. The bill has been submitted to Governor Gavin Newsom for approval.

Board and executive level diversity have become increasingly central in company and investor sustainability discussions. Last week, $3 trillion asset manager State Street Global Advisers announced that it will begin asking companies in its investment portfolio to articulate their risks, goals and strategy relating to racial and ethnic diversity, and to make relevant disclosure available to shareholders.

The California legislation indicates that significant work remains to be done on the diversity front. Citing 2018 data from Deloitte and the Alliance for Board Diversity, the legislation notes that the percentages of Fortune 500 company board seats held by people identified as African American/Black, Hispanic/Latino(a), and Asian/Pacific Islander were 8.6 percent, 3.8 percent, and 3.7 percent, respectively.

Garcia said:

“The lack of diversity on California’s boards and upper level corporate positions is a challenge we urged corporations to address on their own during our time in the Legislature. However, it is clear we can no longer wait for corporations to figure it out on their own. By ensuring diversity on their boards, we know the corporations are more likely to both create opportunities for people of color and give them the support to thrive within that corporation.”

AB-979 requires corporations with principal executive office located in California to have a minimum of one director from an underrepresented community by the end of 2021. Additionally, by the end of 2022, corporations with 5 to 8 directors will be required to have a minimum of 2 directors from underrepresented communities, and those with 9 or more directors will be required to have at least 3 such directors. Underrepresented communities include Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, gay, lesbian, bisexual, or transgender.

Holden said:

“If we are going to address racial injustice and inequity in our society, it’s imperative that corporate boards reflect the diversity of our State. One great benefit of this action – corporations with ethnically diverse boards have shown to outperform those that lack diversity.”