On March 1, the new California Secretary of State, Dr. Shirley N. Weber (who replaced Alex Padilla, newly appointed Senator) issued the Secretary’s 2021 report required by SB 826, California’s board gender diversity law, on the status of compliance with the law. The report counts 647 publicly held corporations that identified principal executive offices in California in their 2020 10-Ks, and indicates that 318 of these “impacted corporations” had filed a 2020 California Publicly Traded Corporate Disclosure Statement, which would reflect their compliance with the board gender diversity requirement (slightly fewer than the 330 filed last year). Of the 318 companies that had filed, 311 reported that they were in compliance with the board gender diversity mandate, slightly more than the 282 reported last year, but still less than half of the companies subject to the law. (See this PubCo post.) But is that data from the report really meaningful?
With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). The California Partners Project, which was founded by California’s current First Lady, has just released a new progress report on women’s representation on boards of California public companies, tracking the changes in gender diversity on California boards since enactment of the law. According to the report, “[r]esearch has shown us that companies with women on the board of directors outperform those without them. Women directors are more effective at managing risk, better able to balance long-term priorities, and have a keen sense of what customers, shareholders, and employees need to thrive.” The report observes that, if “all of the companies in the Russell 3000 followed California’s lead, over 3,500 women’s voices would be added to corporate governance.”
In Meland v. Padilla, a conservative legal organization filed suit in federal district court on behalf of a shareholder of a publicly traded company seeking a declaratory judgment that SB 826, California’s board gender diversity statute, was unconstitutional under the equal protection provisions of the 14th Amendment. A federal judge has just dismissed that legal challenge on the basis of lack of standing. (Update: This case has been appealed to the 9th Circuit.)
As required by SB 826, California’s board gender diversity law, the California Secretary of State has posted its March 2020 report on the status of compliance with the new law. The report combines information gathered in the July 2019 report (see this PubCo post) with data for the additional six-month period of July 1, 2019 through December 31, 2019. The report counts 625 publicly held corporations that identified principal executive offices in California in their 2019 10-Ks, but indicates that only 330 of these “impacted corporations” had filed a 2019 California Publicly Traded Corporate Disclosure Statement, which would reflect their compliance with the board gender diversity requirement. Of the 330 companies that had filed, 282 reported that they were in compliance with the board gender diversity mandate.
Remember California’s SB 826, the board gender diversity mandate? That law requires each public company with principal executive offices located in California, no matter where they are incorporated, to have a minimum of one woman on its board of directors by the close of 2019. That minimum increases to two by December 31, 2021, if the corporation has five directors, and to three women directors if the corporation has six or more directors. (See this PubCo post.) Has it made a difference? According to reporting from the WSJ, the answer is a big yes. Given the success of the new law in making progress toward its goals, the question then is—are other states now following California’s playbook? Well, kinda, sorta….
There’s now another legal challenge to SB 826, California’s board gender diversity statute, filed today in the federal district court in the Eastern District of California. In Creighton Meland v. Alex Padilla, Secretary of State of California, a conservative legal organization filed a complaint on behalf of a shareholder of a publicly traded company that is incorporated in Delaware and headquartered in California. The case seeks a declaratory judgment that the statute is unconstitutional under the equal protection provisions of the 14th Amendment and a permanent injunction preventing implementation and enforcement of the statute. A representative of the legal organization contended that the statute “puts equal numbers above equal treatment….This law is built on the condescending belief that women aren’t capable of getting into the boardroom unless the government opens the door for them. Women are capable of earning a spot on corporate boards without the government coercing businesses to hire them.” This case appears to be the second complaint filed to challenge the new law, the first being, Crest v. Alex Padilla. As you may recall, Crest, filed in California State Court, was framed as a “taxpayer suit” that sought to enjoin Padilla from expending taxpayer funds and taxpayer-financed resources to enforce or implement the statute, claiming violations of the equal protection provisions of the California constitution. (See this PubCo post.)
ISS recently released the results of its 2019 Global Policy Survey. In this year’s integrated survey, the topics included board gender diversity, overboarding, sunsetting of multi-class capital structures, combined chair and CEO roles and climate change risk. The respondents included 128 investors (including 88 asset managers, 24 asset owners, four advisors and 12 other investors), and 268 non-investors (including 227 corporate issuers, 19 advisors, six corporate directors and 16 other non-investors). Highlights of the survey are summarized below.
It was only a matter of time. As reported here on Bloomberg, a conservative activist group has filed a lawsuit, Crest v. Alex Padilla, in California state court on behalf of three California taxpayers seeking to prevent implementation and enforcement of SB 826, California’s Board gender diversity legislation. This appears to be the first litigation filed to challenge the new law. Framed as a “taxpayer suit,” the litigation seeks to enjoin Alex Padilla, the California Secretary of State, from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law, alleging that the law’s mandate is an unconstitutional gender-based quota and violates the California constitution.
As reported by the WSJ, a new milestone has finally been reached for board gender diversity: there are no longer any companies in the S&P 500 with all-male boards!
Reaching just that one milestone has not exactly been expeditious. According to the WSJ, one in eight S&P 500 boards was all male in 2012. In 2019, women hold 27% of all S&P 500 board seats, up from 17% in 2012—certainly an improvement, but still far from anyone’s idea of gender parity. Progress seems to be even slower among companies in the Russell 3000 where, the WSJ reports, as of the first quarter of 2019, 376 companies still had all-male boards (19.3% women overall), reflecting a decrease from 457 in the fourth quarter of 2018 (18.5% women).
California Secretary of State publishes “report” about SB 826, California’s new board gender diversity mandate—UPDATED
This post updates an earlier post on this topic to reflect information from a conversation with a knowledgeable representative of the California Secretary of State’s office. He was able to provide some insight about their process and clarify why some apparent inconsistencies were not really inconsistent.
As reported on thecorporatecounsel.net blog, the California Secretary of State has published on its website two spreadsheets, dated July 1, 2019, which apparently together constitute its mandated “report” under SB 826, California’s new board gender diversity mandate. The first spreadsheet identifies 537 companies that the Secretary’s office views as subject to SB 826. The next spreadsheet identifies 184 companies that were apparently in compliance with the board gender diversity mandate as of that date. According to the “methodology,” this data was based on information available for the review period from January 1 to June 30, 2019 in California and SEC filings, as well as information from the NYSE, Nasdaq and miscellaneous other online resources. An updated report will be published on March 1, 2020.