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Delaware Corporation Adopts Gender Quota Bylaw

NantKwest, Inc. is a Delaware corporation with its principal executive offices located in San Diego, California.  Last month, NantKwest filed this Form 8-K reporting that it had amended and restated its bylaws "to implement the requirements of SB 826 that mandates female representation on boards of directors".  SB 826 is a California law that requires publicly held domestic and foreign corporations to have a minimum number of female directors if the company's principal executive offices, according to its Form 10-K, are located in California.  Cal. Corp. Code §§ 301.3 & 2115.5.

The Bylaw operates by dividing NantKwest's board into two classes.  To be qualified for a "Class 2 Directorship", the individual must self-identify her gender as a woman, without regard to her designated sex at birth.  Consonant with SB 826, the number of Class 2 Directorships will eventually depend upon the "number of directors".  All directorships that are not Class 2 Directorships are Class 1 Directorships.  

NantKwest states that it adopted these changes "in the interest of maintaining good corporate governance practices".  I find this curious because nothing in SB 826 requires that a subject corporation amend its bylaws.  More importantly,  a corporation can fulfill SB 826's gender quota without amending its bylaws.  Finally, bylaws imposing quotas based on gender may violate California's Unruh Civil Rights Act which provides:

"All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever." 

Cal. Civ. Code § 51(b). 

The Bylaws also leave unanswered several important questions.  Is the "number of directors" the number of authorized directors or the number of directors serving at any one time?  What happens if a person's self identification of gender changes after election or appointment to a Class 2 Directorship?  

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About this Author

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

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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