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Sullivan & Cromwell Discusses California’s Female Gender Quotas for Public Companies

On September 30, 2018, Governor Brown of California signed into law a bill, SB-826, to require female representation on the boards of directors of publicly traded companies who identify as being headquartered in the state.  SB-826 makes California the first state to attempt to enact female gender quotas for boards of directors.  SB-826 will become effective on January 1, 2019 and will require companies subject to the legislation to comply with the first phase of requirements (requiring boards of directors to have at least one female member) no later than December 31, 2019.


SB-826 inserts a new Section 301.3 in the California Corporations Code that provides:


Given the recent investor emphasis on the gender diversity of boards of directors, public companies have increasingly addressed in their proxy statements the principles by which the nominating or governance committee considers gender, racial and other types of diversity in choosing a slate of directors for election and the steps taken to ensure a diverse pool of potential nominees is considered.  In light of SB-826 and continued interest in this topic, companies should be prepared to articulate the considerations given to gender diversity with respect to their boards of directors.


[1]   “Publicly held corporation” is defined as “a corporation with outstanding shares listed on a major United States stock exchange.”

[2]   Del. Code Ann. tit. 8, §§ 141(b), 141(k), 223(a).

[3]   Cal. Corp. Code § 212(a).

[4]   Cal. Corp. Code §§ 303, 305(a).

[5]   See, e.g., letter from California Chamber of Commerce, et al., to Members, California State Senate, SB 826 (Jackson) Corporations: Board of Directors—Oppose (May 29, 2018).

[6]   Letter from Governor Edmund G. Brown Jr. to Members, California State Senate (Sept. 30, 2018).

[7]   Currently, ISS will highlight all-male boards of directors, but will not recommend an adverse vote on the basis of gender diversity.

[8]   Glass Lewis, 2018 Proxy Paper, Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice; Bradley Keoun and Anders Keitz, All-Male Boards Could Face New Pressure From Shareholder Adviser ISS, TheStreet (Sept. 19, 2018).

[9]   State Street Global Advisors, Inc. has indicated that it may vote against election of the chair of the board of directors’ nominating committee if the board of directors does not include at least one female director.  BlackRock, Inc. has stated that it normally expects to see at least two women directors on all boards of directors of U.S. companies and that it may vote against the members of the nominating committee of a board of directors lacking diversity.  The Vanguard Group, Inc. stated that demonstration of meaningful progress on gender diversity over time will inform Vanguard Group’s engagement and voting going forward.  See State Street Global Advisors, 2018 Proxy Voting and Engagement Guidelines: North America (United States & Canada) (Mar. 16, 2018); BlackRock, Proxy voting guidelines for U.S. securities (Feb. 2018); The Vanguard Group Inc.’s open letter to directors of public companies worldwide.

This post comes to us from Sullivan & Cromwell LLP. It is based on the firm’s memorandum, “California Enacts Female Gender Quotas for Public Companies Headquartered in the State,” dated October 1, 2018, and available here.

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