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Is Compliance With California's Female Quota Law Voluntary?

California's female director quota law was on trial last week.  According to Brian Melley, a reporter for the Associated Press, a witness from the Secretary of State's office testified "It’s required but there’s no penalty, so it’s essentially voluntary."  While the Secretary of State's office has yet to impose any fines, I don't believe that anyone believed that the law was "voluntary".  

The statute, California Corporations Code Section 301.3, states that no later than the close of 2019, a publicly held domestic or foreign corporation whose principal executive offices (according to its Form 10-K) "shall" have a minimum of one female director.  By the end of this year, the statute provides that a corporation "shall" have a specified minimum number of directors based on the number of directors.  Although I have remarked on the ambiguity of "shall" in legal writing, there is no ambiguity about its meaning in the California Corporations Code.  Section 15 provides that "'Shall' is mandatory" and 'may' is permissive".  

Even the Secretary of State's Corporate Disclosure Statement (SI-PT) states that compliance with the statutory quotas is required (although reporting of compliance on the statement is voluntary):

Board Diversity: Effective January 1, 2019, California Corporations Code sections 301.3 and 2115.5 require Board Diversity: Effective January 1, 2019, California Corporations Code sections 301.3 and 2115.5 require publicly held corporations with a principal executive office located in California to have a minimum number of female directors on their Board of Directors.  In addition, effective January 1, 2021, California Corporations Code sections 301.4 and 2115.6 require such corporations to have a minimum number of directors from underrepresented communities on their Board of Directors.  A publicly held corporation may report compliance with the statutory board diversity requirements on its annual Corporate Disclosure Statement.

While the Secretary of State may have no present plans to impose fines, that could certainly change, especially if the law survives constitutional challenge.  It seems a more than a bit disingenuous for the state to enact a law that unambiguously imposes specific mandates and prescribes significant monetary penalties for failure to comply and then take the position that compliance is "voluntary" because it hasn't fined anyone yet.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 340
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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