BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1255
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          Date of Hearing:   April 12, 2011

          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
                               V. Manuel Pérez, Chair
            AB 1255 (V. Manuel Perez) - As Introduced:  February 18, 2011
           
          SUBJECT  :   Notice of Corporate Board Candidate Registries

           SUMMARY  :   Requires the Secretary of State (SOS) to provide 
          corporations with a listing of corporate board candidate 
          directories for the purpose of expanding the qualified pool of 
          candidates for corporate board membership.  Corporate boards are 
          not required to choose from the list.  Specifically the bill:

          1)Makes findings and declarations of the Legislature including 
            the following:

             a)   As an unprecedented number of baby boomers prepare to 
               retire from the market place, many corporate boards will be 
               seeking new members to shape the future of their companies.

             b)   While companies want to remain competitive, there 
               remains a significant gap in the ethnic and gender 
               diversity of corporate boards.

             c)   Increasing awareness of corporate board candidate 
               directories will assist corporate boards and their 
               consultants to more cost effectively consider a broader 
               range of candidates.

          2)Requires the SOS, to the extent that registries are known and 
            available, to provide corporations with information regarding 
            the registries of potentially qualified candidates for 
            corporate directorships.  

          3)Authorizes the SOS to collaborate with specified offices and 
            entities in connection with these duties, including the Public 
            Employees' Retirement System, the State Teachers' Retirement 
            System, the Council of Institutional Investors and other 
            corporate governance associations, Commission on the Status of 
            Women and other women-focused organizations, minority 
            organizations, business and professional organizations, and 
            any other individual or entity the Secretary of State deems 
            appropriate.









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           EXISTING LAW  :

          1)Provides for the formation and operation of a corporation and 
            prescribes the powers and duties of a corporation's board of 
            directors.

          2)Authorizes one or more natural persons, partnerships, 
            associations or corporations, domestic or foreign, to form a 
            corporation by executing and filing articles of incorporation 
            with the SOS, as specified.  Articles of incorporation may be 
            filed prior to initial board of directors being selected and 
            named in the articles.

          3)Requires the SOS to develop a registry of distinguished women 
            and minorities who are available to serve on corporate boards 
            of directors and authorizes the SOS to contract this 
            responsibility to a state university.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :  

           1)Author's purpose  :  According to the author, the purpose of AB 
            1255 is to provide corporations and investors access to a 
            larger pool of qualified individuals from which to select new 
            corporation board members.  With unprecedented numbers of 
            corporate board members retiring in the next decade, it is 
            imperative that qualified individuals be efficiently 
            identified to fill those seats and that those individuals 
            reflect the changing demographics of the state.  Given the 
            diversity of the California population and the broad array of 
            skill sets that modern day corporate boards need to possess, 
            it is not reasonable to assume that boards are aware of every 
            possible qualified individual or that they are aware of 
            reliable sources for such information.  

            Requiring the SOS to provide corporations with a listing of 
            current board of director registries will help them access a 
            wider set of choices. This enables boards to be even more 
            selective, helping to ensure the highest quality board 
            composition.  It is in the state's interest that California 
            businesses have strong, diverse boards that help them to 
            remain competitive. The state benefits through higher taxes 
            based on higher corporate revenues and greater job retention 
            and creation.  Nothing in this bill requires that the 








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            candidates in the registries be selected, rather it offers 
            useful information to a select and targeted audience.  

           2)Market impacts of California's demographic shift  :  As 
            unprecedented numbers of baby boomers prepare to retire from 
            the market place, many corporate boards will be seeking new 
            members to help shape their businesses for the future.  This 
            demographic trend reflects not only a generational shift in 
            the U.S., but it also marks a shift in the race and ethnicity 
            of the nation's working age population.  

            The California Budget Project estimates that by 2020, nearly 
            60% of the working age population in California will be 
            comprised of Latinos, African Americans, and Asian-Americans.  
            Similarly, the composition of the U.S. consumer-base is 
            changing.  Minority purchasing power in the U.S. is expected 
            to triple from $1.3 trillion in 2000 to over $4 trillion by 
            2045.  This represents over a 70% growth of total U.S. 
            purchasing power during the same time period.  Latino and 
            African American purchasing power is already so significant in 
            the U.S. that if it were compared to national GDPs, it would 
            be greater than all but nine economies in the world.

            Companies that want to remain competitive are designing new 
            and adapting existing products and services to meet this 
            expanding market.  Corporate leadership, however, has not kept 
            pace with the changing demographics, and there remains a gap 
            in the ethnic and gender diversity on corporate boards.  
            According to a 2008 report by Virtcom Consulting on the 
            leadership of Fortune 100 companies, while women comprise 
            slightly more than half the U.S. population, they hold only 
            17% of the positions on corporate boards of Fortune 100 
            companies.  The same report states that research suggests that 
            companies with more diverse boards have higher performance and 
            other financial metrics such as return on equity, return on 
            sales, and return on investment.

            However, even given this type of empirical evidence for 
            out-performance, there has been very little progress in 
            bringing diversity to boardrooms.  The above-referenced report 
            states that Caucasian, non-Latinos still hold a 
            disproportionate share of board seats by occupying 84% of the 
            1,031 corporate board seats of Fortune 100 companies.  African 
            Americans held 10%, Asians 2%, and Latinos 4%.  Another study 
            conducted by the Alliance for Board Diversity examined growth 








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            in diversity from 2004 to 2006, revealing that only three net 
            seats were gained by women and minorities.

           3)Barriers to corporate board diversity  :  One of the initial 
            barriers to becoming a candidate for corporate board 
            membership is being recommended by the consultant or 
            "Headhunter" who has been hired by the company to present the 
            board with a slate of prospective candidates.  Often these 
            slates have a limited number, if any, of female candidates or 
            candidates of color.  With corporate boards most interested in 
            choosing from among the very best prospective board members, 
            increasing the diversity among the "known" pool of qualified 
            candidates is essential.

            Investors, as well as nonprofit professional organizations, 
            are responding to this need for new pools of qualified 
            corporate board candidates.  On April 5, 2011, California's 
            two largest pension funds announced they were working with an 
            advisory board to develop a new digital resource from which to 
            recruit corporate board directors.  The new database, called 
            the Diverse Director Datasource (3D), will be administered 
            through the Corporate Library, an independent corporate 
            governance researcher.  Other registries exist, including a 
            directory sponsored by the National Association of Corporate 
            Directors.  

           1)Post-recession economy requires top quality board directors  :  
            As California moves slowly out of the recession, growth will 
            need to take place within a post-recession economy that will 
            likely be more resource and capital constrained.  In addition, 
            some analysts believe the global economy will transition 
            through a great "rebalancing of economic power," whereby the 
            U.S.' dominant economic position will be challenged by other 
            large economies like those in Japan, China and the European 
            Union.   

            In fact, the U.S. has slipped to third place among G-20 
            nations in terms of clean energy sector investments according 
            to the Clean Edge News.  Until 2008, the U.S. had been the 
            world leader, a position now held by China.  Globally, 2010 
            clean-energy finance and investments grew by 30% to a record 
            $243 billion.  The United States received $34 billion in 
            equity last year, a 51% increase from 2009.  However, the gap 
            with China, which attracted a record $54.4 billion, continues 
            to widen.  Germany also attracted more money than the U.S. 








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            with $41.2 billion, claiming the number two spot, up from 
            third the previous year. 
             
             The Brookings Metropolitan Policy Program has published its 
            own assessment of how the great rebalancing will be 
            experienced in the U.S. and has noted four key trends to watch 
            in the post-recession economy.  The first trend is that the 
            economy will be more export oriented and second, it will be 
            fueled by new, lower-carbon energy sources.  The third trend 
            identified is that the next economy will be based on a higher 
            level of global innovation, which will require "a relentless 
            pace of innovation, adaptation, and embracement of new markets 
            and processes." The fourth key trend is that next economy will 
            be led by major metropolitan areas - not nations and not 
            states.   

            A February 2011 report released by McKinsey & Company (M&C), 
            "Growth and Renewal in the United States:  Retooling America's 
            Economic Engine" underscores the importance of addressing the 
            challenges of creating environments supportive of 
            innovation-based business models as a means for achieving 
            increased productivity.  In its report, M&C notes that between 
            2000 and 2008, increased productivity contributed 80% of the 
            U.S. annual GDP growth and that the loss of its large and 
            skilled labor force represented by the retirement of the Baby 
            Boomer generation jeopardizes the U.S.' economic growth unless 
            productivity is significantly increased among remaining 
            workers.  Over the next decade, M&C predicts the U.S. could 
            face a 1.9 million shortfall in technical and analytical 
            workers.

            For many companies their success is highly dependent on 
            expanded cross-border supply chains, broad consumer bases and 
            networked financial markets.  Markets are changing and the 
            next corporate leaders will require new skill sets and 
            capabilities.  Facilitating the dissemination of information 
            regarding directories and databases that introduce new 
            corporate board candidates, as proposed by AB 1255, supports 
            sound private sector decision making.  

           2)Author's amendments  :  The author's office has been meeting 
            with the SOS to discuss the agency's opposition to the bill 
            due to its potential implementation costs.  The author has 
            agreed to consider cost containment amendments offered by the 
            SOS.  If recommendations come back prior to the hearing, the 








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            author may offer these amendments in committee in which case a 
            mock-up and proposed amendment analysis will be provided. 

           3)Related legislation  :  In 1993, legislation was enacted ÝSB 545 
            (Killea), Chapter 508, Statutes of 1993], which required the 
            SOS to establish a registry of distinguished women and 
            minorities who were interested in being selected for corporate 
            board membership.  No appropriation was made to establish the 
            Registry; however, fees were authorized to self-fund it.  Even 
            with the fee authority, the SOS failed to establish the 
            Registry by its statutory deadline of January 1, 1995.  

            In 1998, the SOS received statutory permission ÝSB 1652 
            (Kopp), Chapter 829, Statutes of 1998] to transfer the 
            registry to a campus of the California State University (CSU) 
            or University of California.  In January of 1999, CSU 
            Fullerton accepted the transfer of the Registry.  News 
            clippings and a 2002 activity report from CSU Fullerton 
            indicate that the university made a substantial attempt to 
            maintain and expand the Registry from 1999 through 2002, 
            including approving a $50,000 initial operating budget, 
            establishing an esteemed advisory board, seeking high-level 
            corporate and nonprofit Registry membership and participating 
            in promotional and networking activities.


            Members of the advisory board included, but were not limited 
            to, Dr. Bill Crist, President of the California Public 
            Employees Retirement Board; Assemblywoman Marilyn Brewer 
            (R-Newport Beach); Dr. Jean Lipman-Blument, professor at 
            Claremont Graduate University; and Bill Jones, SOS.  
            Promotional events included attendance at several California 
            Governor's Conferences for Woman, a Bakersfield Business 
            Conference, the 2002 Women's Empowerment Conference, and 
            numerous events with the National Association of Women 
            Business Owners.  While the state registry appeared to have 
            had a strong start, CSU Fullerton was not able to fund the 
            program beginning in 2002.  


            In 2010, AB 1491 (V. Manuel Pérez) was introduced to clarify 
            existing law regarding the transfer of the California Registry 
            of Corporate Board Candidates.  Due to conflicting legal 
            opinions as to which entities (SOS or CSU) had responsibility 
            for the registry, the bill was put aside by the author and the 








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            issue of the state registry remains in dispute.


            This bill, AB 1255, takes a different approach to encouraging 
            greater diversity among corporate boards by highlighting the 
            availability of other registries and databases of qualified 
            corporate director candidates.  

           4)Demographic shifts require new economic models:   For the past 
            several sessions, the Assembly Committee on Jobs, Economic 
            Development, and the Economy (JEDE) has examined the impact of 
            changing demographics on California communities.  Among other 
            activities, JEDE has convened advisory groups, hosted 
            workshops, held hearings and sponsored legislation focusing on 
            how companies, investors and other economic professionals are 
            addressing the impact of millions of workers retiring within a 
            very short span of years and the ability of the remaining 
            workers to sustain and grow the California economy.  
             
             The primary objectives of the work is to identify practical, 
            cost effective models to smooth this economic transition by 
            encouraging entrepreneurship, the development of quality jobs, 
            and increasing private investment in historically underserved 
            areas.  This session, JEDE is sponsoring a number of bills, in 
            addition to AB 1255, to address this issue.  The package 
            includes legislation affecting regulatory reforms.  Below is a 
            list.

              a)   AB 893 (V. Manuel Pérez) California Infrastructure and 
               Economic Development Bank  :  This bill modernizes the 
               operations of the California I-Bank, such as the inclusion 
               of the economic development community on the Board, 
               mandating outreach to communities, and adding new reporting 
               requirements about the number of jobs created and retained 
               and industries served.  Status:  The bill is pending in 
               JEDE.

              b)   AB 894 (V. Manuel Pérez) California Manufacturing 
               Competitiveness Act of 2011  :  This bill establishes a loan 
               and loan guarantee program to enable the state to draw down 
               federal dollars to support the retooling and expansion of 
               manufacturing in California.  Among other eligible 
               projects, the funding can be used to purchase and install 
               renewable energy and conservation upgrades, as well as 
               build green certified buildings.  Status:  The bill is 








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               pending in JEDE.

              c)   AB 1037 (V. Manuel Pérez) Small Business Regulatory 
               Reform  :  This bill removes statutory barriers that inhibit 
               the full consideration of the impacts of state rules and 
               regulations on the economy, including the small business 
               sector, and requires a review of all regulations on small 
               businesses after five years to identify opportunities to 
               mitigate negative impacts.  Status:  The bill is pending in 
               JEDE.

              d)   AB 1137 (V. Manuel Pérez) Small Business Export 
               Assistance and Attracting Private Investment  :  This bill 
               facilitates local economic development and job creation by 
               assisting small business to access new export markets for 
               their goods and services, updating the law relating to free 
               trade zones, and authorizing the use of new federal funds 
               under the Small Business Jobs Act of 2010.  Status:  The 
               bill is pending in JEDE.

              e)   AB 1233 (V. Manuel Pérez) Economic Development Strategy  : 
                This bill modernizes California's economic development 
               activities and promotes the state's competitiveness by 
               requiring an integrated economic and workforce development 
               strategy consistent with the needs of all Californians.  
               Status:  The bill is pending in JEDE.

              f)   AB 1379 (Bradford) Public Pension Fund Investment in 
               Underserved Areas  :  This bill requires public pension funds 
               with assets over $4 billion to annual report on their 
               investments in historically underserved areas including job 
               creation.  Status:  This bill is pending in the Assembly 
               Committee on Public Employees Retirement and Social 
               Security.

              g)   AB 1409 (JEDE) Goods Movement Update to State Economic 
               Strategy  :  This bill institutes policy goals, objectives 
               and recommendations adopted in the Goods Movement Action 
               Plan that are necessary to provide the trade infrastructure 
               needed to implement a comprehensive international trade and 
               investment program for the State of California.  Status:  
               The bill is pending in JEDE.

           REGISTERED SUPPORT / OPPOSITION  :   









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           Support 
           
          Assembly Committee on Jobs, Economic Development and the Economy 
          (Sponsor)
          CDC Small Business Finance
          San Francisco Department on the Status of Women
          SEIU Local 1000
          The Greenlining Institute

           Opposition 
           
          California Secretary of State
           

          Analysis Prepared by  :  Toni Symonds / J., E.D. & E. / (916) 
          319-2090