Under Assembly Bill 979, publicly held corporations headquartered in California are required to have at least one director from an underrepresented community by the close of 2021.
By the end of 2022, corporate boards with four to nine members must have two people from underrepresented communities, and those with more than nine members must have at least three people from those communities.
Directors from an underrepresented community include those who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identify as gay, lesbian, bisexual or transgender.
"While some corporations were already leading the way to combat implicit bias, now all of California's corporate boards will better reflect the diversity of our state," said Assemblyman Chris Holden (D-Pasadena), one of the authors of the bill, on Wednesday. "This is a win-win, as ethnically diverse boards have shown to outperform those that lack diversity."
He said that after the death of George Floyd in police custody, many corporations offered public support for diversity, but that too many firms have not acted on that support.
Lawmakers cited 2018 data from Deloitte and the Alliance for Board Diversity that found the percentage of Fortune 500 company board seats held by people who identified as African American or Black was 8.6%, while Latino people held 3.8% of seats, and people identified as Asian or Pacific Islander held 3.7%.
That study indicated that 84% of board seats were held by people identified as white, which lawmakers said is 22% higher than that group's share of the general population.
Lawmakers have urged corporations for years to make their boards more reflective of society, said Democratic Assemblywoman Cristina Garcia, another author of the new law.
"However, it is clear we can no longer wait for corporations to figure it out on their own," Garcia said.
Supporters touted the outcome of Senate Bill 826, which required public companies headquartered in California and traded on the NYSE or Nasdaq to have at least one female director by Dec. 31, 2019.