Poster sizes

Confusion over changing the size of corporate boards


As noted in yesterday’s post, Secretary of State Shirley N. Weber is asking U.S. District Court Judge R. Gary Klausner to dismiss a challenge to the California board’s quota statutes. In her motion to dismiss, the Secretary of State advances the following argument:

The legislature has explicitly granted companies subject to SB 826 and AB 979 the flexibility to comply with their conditions without excluding any current or potential director due to gender or lack of membership in an under-represented group: ” A company may increase the number of directors on its board of directors to comply with this section. Cal. Company code §§ 301.3 (a) and 301.4 (a).

It is difficult to know what to make of this statement. This is correct to the extent that this is what the statutes say, but has the legislature really allowed additional flexibility?

Under California General Corporation Law, the permitted number of directors can be either a fixed number or a fixed number within a specified range. Cal. Company Code § 212 (a). Corporations don’t change those numbers – shareholders do. After the issuance of the shares, a change in the specification or modification of a fixed number of directors or the maximum or minimum number or the change from a fixed number to a variable board or vice versa requires the approval of the shares. outstanding (as defined in section 152). Identifier. For public companies, obtaining the required shareholder approval is both time consuming and expensive due to the need to comply with federal proxy rules.

Although the Secretary of State was correct that the Legislature gave some flexibility, that flexibility is limited to “corporations,” a term defined in section 162 as corporations organized under the GCL and certain other corporations. national. The laws at issue, however, apply to foreign publicly owned companies. As much as the California legislature might wish to do, it does not have the power to change the laws of other states governing how their corporations set the size of their boards of directors.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP Revue nationale de droit, volume XI, number 288