On September 30, 2020, Gov. Newsom signed Assembly Bill 979 (“AB 979”) into law.  The new statute, which adds section 301.4 to the Corporations Code, is aimed at increasing representation from communities of color and the LGBT community on the boards of publicly traded companies.  The law follows in the footsteps of earlier legislation that required publicly traded corporations in California to hit certain gender targets on their boards.

AB 979 applies to publicly held domestic or foreign corporations whose principal executive offices are located in California, according to the companies’ filings with the U.S. Securities and Exchange Commission.  The law requires that covered corporations have at least one director from an “underrepresented community” on their board by the close of calendar year 2021; it sets further targets for board membership by the close of the 2022 calendar year, depending on total board size.  AB 979 defines a “director from an underrepresented community” as a director who self-identifies as “Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

And, AB 979 has teeth:  It empowers the Secretary of State to impose fines on corporations that fail to comply—ranging from $100,000 to $300,000.  AB 979 also requires that the Secretary of State post annual reports on its website listing, among other information, the number of corporations that are in compliance with the new requirements as well as information regarding those corporations that either moved their headquarters to California or out of it.

The same day Gov. Newsom signed AB 979 into law, Washington, D.C.-based conservative legal group Judicial Watch, Inc. filed a constitutional challenge to the legislation in Los Angeles Superior Court arguing that the new law fails under strict scrutiny review.