New bill: Board member diversity is a necessity

On Behalf of | Mar 10, 2021 | business litigation

There is no denying how important diversity is in the business world. Current events have only placed even more emphasis on this matter.

Many sources, from Forbes to the Harvard Business Review, stress the need for diversity and provide business owners with tips and resources to improve inclusion in their businesses. However, California lawmakers have taken it a step further.

AB 979 requires representation on corporate boards

In a previous blog post, we discussed the state law enacted in 2018 requiring companies to include women on their board. While this law faced pushback from several business owners, lawmakers passed a new addition to this law in 2020.

Assembly Bill 979 expands the requirements for representation on corporate boards. Within the bill, lawmakers identify several disparities that exist within the business world. The goal of this law is to reduce those disparities.

Therefore, by the end of 2021, this law will require publicly held companies in California to have at least one board member from underrepresented communities. The law specifically states this refers to anyone who identifies themselves as:

  • Black
  • African American
  • Hispanic
  • Latino
  • Asian
  • Pacific Islander
  • Native American
  • Native Hawaiian
  • Alaska Native
  • LGBT

Depending on the number of directors or board members, companies will have to meet different conditions and numbers under the law.

Business owners must file the information about their board members with the Secretary of State, to confirm that they meet the requirements under the law. Failing to comply with the terms of the new law can lead to significant financial penalties for businesses.

What should business owners do?

Of course, employers should ensure they take steps to comply with this law. Even though it currently faces pushback and legal challenges, it is still critical to be proactive in these matters to avoid potential penalties.

Regardless of the law, however, it is a good idea for business owners to review the job descriptions, recruiting practices and policies laid out for the board of directors to:

  1. Ensure that the board maintains the best interests of the business
  2. Understand how diversity could improve and help their business

Improving diversity on the board of directors has many benefits for businesses at many levels. The combination of different perspectives and experiences is always valuable in the business world, and business owners should reevaluate their goals regularly as they move forward to make sure they safeguard the future success of their business at all levels.