JR Lanis and Savir Punia authored an article for Private Company Director titled “What California’s Women-on-Boards Mandate Means for Private Companies.” The article discussed implications of the new law for private companies, particularly those that are interested in pursuing an initial public offering (IPO) in the near future.
In 2019, California became the first state to mandate that companies incorporated or based in California, and are listed on major U.S. stock exchanges, have at least one woman on their boards of directors by the end of 2019. The new law also requires these companies to have a representative number of women on their boards of directors by the end of 2021.
JR and Savir wrote that companies interested in pursuing an IPO must incorporate compliance with the mandate into their pre-IPO planning processes. The law doesn’t provide a transition period, so any California company seeking to go public must start planning. For example, “any director candidates nominated by the board will face stockholder approval scrutiny upon the company going public, and, as a result, pre-IPO companies must ensure any new director will be acceptable to the potential new stockholders of the company.” Public companies that fail to comply at the end of 2019 could be subject to large fines.
The article also noted the ongoing debate over whether the new law may be flawed on constitutional grounds and face a legal challenge.
“Even if the new law is successfully challenged, there is increasing stockholder activism and public awareness in this arena and it would be prudent for pre-IPO companies to seek to diversify their boards,” JR and Savir wrote.