Does The Secretary Of State's Definition of "Publicly Held Corporation" Miss The Mark?
On March 1, the Secretary of State released the report on California's female director quota requirement mandated by Corporations Code Section 301.3. The report is included on the Women on Boards page of the Secretary's website. That page also includes links to the 2020 and 2019 reports, other resources and frequently asked questions (FAQs). One of the FAQs attempts to explain the difference between a "publicly held corporation" and a "publicly traded corporation". The former is the term used in the female director quota law while the latter is the term used in the public company disclosure law.
According to the FAQ, "publicly held corporations" are "corporations with shares listed on the New York Stock Exchange (NYSE), the National Association of Securities Dealers Automated Quotations (NASDAQ), or the NYSE American (formerly known as the American Stock Exchange or AMEX)".
This definition is problematical in several respects. First, the reference to the "National Association of Securities Dealers Automated Quotations" is anachronistic. What had formerly been an over-the-counter market is now a stock exchange named "The Nasdaq Stock Market LLC". Second, the definition is inconsistent with the statute which defines "publicly held corporation" as "a corporation with outstanding shares listed on a major United States stock exchange". Cal. Corp. Code § 301.3(f)(2). The General Corporation Law does not define "major United States stock exchange" but the Securities and Exchange Commission has registered some two dozen "national securities exchanges". Third, the definition constitutes a regulation under California's Administrative Procedure Act because it implements, interprets and makes specific a law administered and enforced by the Secretary of State. Cal. Gov't Code § 11342.600. As such it is not enforceable unless the Secretary of State has adopted it pursuant to the rulemaking provisions of the APA. Cal. Gov't Code § 11340.5(a).