On the other hand, more than a decade ago the highly respected Delaware Supreme Court ruled that Delaware courts need not follow a key California law attempting to regulate shareholder voting rights in Delaware corporations on the basis of the Delaware internal affairs doctrine.Although the new law has been characterized by its proponents as a call for action for improving gender diversity on public company boards, the legislation also has drawn strong objections from those asserting that employing quotas to achieve this objective is both poor public policy and unlawful.Indeed, many commentators in recent months have described the legislation as a likely unconstitutional gender quota requirement.As the report states, “[t]he use of a quota-like system, as proposed by this bill, to remedy past discrimination and differences in opportunity may be difficult to defend.” Proponents of the new law disagree and believe a mandatory female director requirement for corporate boards is essential to increasing gender diversity on corporate boards much sooner than current trends for the sake of benefiting California’s economy, and to more quickly promote women’s advancement in corporate leadership and senior management.Many companies, especially large market cap companies, already have at least one female director on their boards.According to a study by Equilar, an executive compensation and corporate governance data firm, “82% of public companies in California [i.e., stock exchange traded and headquartered in California] who have annual revenues of over million will meet the initial criteria, whereas 18% will not.” For those public companies who fall in the 18% camp, however, time will be of the essence under the new law.Nevertheless, compliance with the new law will not be as easy as simply appointing one or more new directors.
Accordingly, as noted in a California Senate report, “[t]here are currently 761 publicly traded companies headquartered in California, including 510 traded on NASDAQ, 216 traded on the NYSE, and 35 on AMEX.” Whether a corporation has its principal executive offices (i.e., is headquartered) in California will be determined with reference to the office location disclosed in the corporation’s annual Form 10-K filing with the U. The California Secretary of State also would be empowered to adopt regulations to implement the new law.
, this law is intended to improve diversity on public company boards.
Senator Jackson’s view is that “gender diversity on corporate boards is associated with increased profitability, performance, governance, innovation, and opportunity.” The legislative findings and declarations to the new law set forth a variety of statistics indicating the absence of gender diversity on California public company boards.
A qualifying company will be allowed under the new law to increase the number of directors so that the company can comply with the new legislation by appointing female directors without removing male directors.
The new law also provides that if a female director holds a position for only a portion of a year, this partial service will not constitute a violation of the statute.
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The challenge for qualifying public companies is not only meeting this deadline but also developing a plan for full compliance going forward in light of normal director turnover and unexpected developments that affect corporate board composition.