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Secretary Of State's Office To Be Tested In Implementing New Gender Quota Law

California's new law imposing gender quotas on boards of publicly held corporations imposes significant new responsibilities on the office of the California Secretary of State.  This will put the office in the difficult position of expending time and resources on a law whose dubious constitutionality was noted by the Governor even as he signed it.  See Does Governor Brown's Signing Message Have Any Legal Effect?

One of the first tasks will be for the Secretary of State's office to publish a report on its web site "documenting the number of domestic and foreign corporations whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California and who have at least one female director".  Cal. Corp. Code § 301.3(c).  The deadline for this report is July 1, 2019.  One difficulty that the Secretary of State will be to determine the gender of directors inasmuch as the Securities and Exchange Commission has no gender disclosure requirements.  Although many first names are traditionally associated with a gender, many (such as Kim) are not.  Implementing this requirement also will likely require the Secretary of State to promulgate rules interpreting the statute and adopting forms.  See Cal. Corp. Code § 301.3(e).  Rulemaking under California's Administrative Procedure Act is a time consuming process that requires public notice and comment.  While the Secretary of State may choose to adopt emergency regulations, this would require a finding that immediate action is required to avoid serious harm to the "public peace, health, safety, or general welfare".  Cal. Gov't Code § 11342.5.

The Secretary of State is also charged with enforcing the new law and is authorized to impose fines on violators.  Although the Secretary of State does have some existing investigative and enforcement powers with respect to notaries and elections, it has not have substantial experience as a civil prosecutor.  The office will undoubtedly need to add staff and adopt regulations to carry out these new tasks.

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About this Author

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

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...