BILL ANALYSIS �
AB 366
Page 1
Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 366 (Holden) - As Amended: April 16, 2013
SUBJECT : Women, minority, and disabled veteran business enterprises
SUMMARY : Modifies the definitions for minority owned business, women
owned business, and disabled veteran owned business enterprise (DVBE)
to encourage contracting with publicly held companies. Specifically,
this bill :
1)Removes the requirement that a "women-owned" publicly held company
has 51% stock ownership by women and, instead, requires that 51% of
the executive management and 51% of the board of directors be
comprised of women for the past five years.
2)Modifies the requirement that a "women-owned" privately held company
be at least 51% owned by one or more women, to also require
management and daily business operations of the business be
controlled by one or more women.
3)Makes similar changes to the definitions of a "DVBE" and
"minority-owned" publicly held company.
4)Defines executive management team to include controlling officers,
as defined in the articles of incorporation or bylaws of the
publicly owned business.
EXISTING LAW :
1)Requires the Public Utilities Commission (PUC) to require each
electrical, gas, water, wireless telecommunications service
provider, and telephone corporation with gross annual revenues over
$25 million (including commission-regulated subsidiaries and
affiliates) to submit annually a detailed and verifiable plan for
increasing women- and minority-owned business and DVBE procurement
in all categories.
2)Requires the PUC to adopt criteria for determining and verifying the
eligibility of a women- and minority-owned business and DVBE
procurement contracts and to establish guidelines for annual
targeted procurement plans.
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3)Encourages each electrical, gas, water, mobile telephony service
provider, telephone corporation that is not required to submit a
plan under existing law, and all cable television corporation and
direct broadcast satellite providers, to voluntarily adopt a plan
for increasing women- and minority-owned business and DVBE
procurement in all categories.
4)Defines the following terms:
a) "Women business enterprise" means a business enterprise that
is at least 51% owned by a woman or women; or, in the case of any
publicly owned business, at least 51% of the stock of which is
owned by one or more women; and whose management and daily
business operations are controlled by one or more of those
individuals.
b) "Minority business enterprise" means a business enterprise
that is at least 51% owned by a minority group or groups; or, in
the case of any publicly owned business, at least 51% of the
stock of which is owned by one or more minority groups, and whose
management and daily business operations are controlled by one or
more of those individuals. The contracting utility is directed to
presume that minority includes Black Americans, Hispanic
Americans, Native Americans, and Asian Pacific Americans.
c) "DVBE" means a sole proprietorship, corporation, or
partnership whose management and control of the daily business
operations is by one or more disabled veterans. If the
enterprise is a sole proprietorship, then at least 51% is owned
by one or more disabled veterans, A publicly owned business must
have at least 51% of its stock unconditionally owned by one or
more disabled veterans. A subsidiary that is wholly owned by a
parent corporation is a DVBE if at least 51% of the voting stock
of the parent corporation is unconditionally owned by one or more
disabled veterans and a joint venture is a DVBE if at least 51%
of the joint venture's management, control, and earnings are held
by one or more disabled veterans.
d) "Control" means exercising the power to make policy decisions.
e) "Operate" means being actively involved in the day-to-day
management and not merely officers or directors.
5)Establishes as a crime for false representation of a women,
minority, or DVBE in the procurement of a contract, punishable by a
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fine of $5,000, or by imprisonment in the county jail or state
prison, not to exceed one year, or by both fine and imprisonment.
In the case of a corporation, the fine or imprisonment shall be
imposed on every director, officer, or agent for the false
statements.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "Assembly Bill 366 is
designed to promote corporate diversity, consistent with the
original intent of the supplier diversity program, by eliminating
the stock ownership requirement and replacing it with a requirement
that corporate boards of directors diversify their membership.
Publicly traded corporations seeking to qualify for preferences
under the supplier diversity program will be required to demonstrate
that their executive level managers and board of directors is
predominantly comprised of either minorities, women, or disabled
veterans. The 51% stock requirement is being removed because it is
technically impossible to monitor and query the gender, ethnicity,
and disability status of shareholders in an environment where stock
ownership changes hands on a daily basis and much stock is owned by
institutional investors and mutual funds."
2)Framing the Policy Issue : This bill seeks to better define a
publicly held company that is majority owned by women, minorities,
and DVBE (WMDVBE). While currently authorized by law, publicly held
companies are rarely reported by regulated utilities toward meeting
their WMDVBE contacting goals.
In considering the need to make such a change, the Committee may
wish to consider the shifting demographics of the state and the
value of supporting full economic participation by all Californians.
Concerns have, however, been raised that the purpose of the PUC
contracting goal is to help California's smallest size businesses,
many of which are WMDVBE, access contracts with PUC regulated
entities. Opponents believe that the bill may dilute one of primary
goals of the targeted procurement program.
The analysis includes background on the PUC general order relating
to diversity contracting, the impact of demographic shifts on the
California economy, stakeholder concerns regarding the proposed
changes, and amendments the author will be requesting at the hearing
to address those concerns (Comment 6).
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3)Statute and PUC General Order 156 : Beginning in 1986, the
Legislature enacted a series of statutes, and the PUC adopted
General Order (GO) 156, for the purpose of encouraging greater
WMDVBE participation in utility contracts. Currently regulated
entities include electrical, gas, water, wireless telecommunications
service providers, and telephone corporations with gross annual
revenues over $25 million including commission-regulated
subsidiaries and affiliates.
Statute and GO 156 include rules and regulations for the utilities'
compliance with the WMDVBE contracting program, and requires
participating utilities to inform, recruit, and obtain at least 20%
of their products and services purchased within a five-year period
from women- and minority-owned businesses. The targets are 15% for
minority-owned businesses, 5% for women-owned businesses, and 1.5%
for DVBEs.
GO 156 further requires woman- and minority-owned business
enterprises to be certified by the CPUC's Utility Diversity Supplier
Program clearinghouse, and disabled veteran-owned businesses
enterprises to be certified by the Department of General Services
pursuant to DVBE certification established under the California
Disabled Veteran Business Enterprise Program. There are currently
6,527 verified vendors in the clearinghouse database, of which 1,934
are minority-owned businesses, 2,239 are women-owned businesses,
1,090 are minority women-owned or woman and minority male-owned
businesses, and 1,264 are disabled veteran enterprise businesses.
Utilities subject to these diversity contracting requirements are
assessed a charge based on intrastate revenues to support operation
of the clearinghouse.
Regulated entities are required to annually submit a detailed and
verifiable plan, with goals and timetables, for increasing WMDVBE
participation in all categories of procurement, including
technology, equipment, supplies, services, materials, and
construction. Although there is no penalty for failure of a utility
to meet its goals, each utility is required to report annually on
its progress. The CPUC, in turn, is required to make an annual
progress report to the Legislature.
The California Constitution prohibits the state from discriminating
against, or granting preferential treatment to, any individual or
group on the basis of race, sex, color, ethnicity, or national
origin in the operation of public employment, public education, or
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public contracting. According to the CPUC, nothing in GO 156
authorizes or permits a utility to use set-asides, preferences, or
quotas in administration of its WMDVBE program and utilities retain
the authority to use legitimate business judgment to select a
supplier for a particular contract.
4)Progress in Implementing GO 156 : In 2011, the most current data
available, covered utilities spent $7.2 billion, which is a 39.26%
increase from the $5.17 billion reported in 2010. Between 2009 and
2011, contracting with WMDVDEs increased by more than 60%.
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------------------------------------------------------------------
| 2011 WMDVBE Procurement from PUC Regulated Entities |
------------------------------------------------------------------
|---------+------------------+------------------+------------------|
|Category | Procurement | Percentage | Goal |
| | Amount | Achieved | |
|---------+------------------+------------------+------------------|
|MBE | $4.65 billion | 19.33% | 15.0% |
|---------+------------------+------------------+------------------|
|WBE | $2.25 billion | 9.35% | 5.0% |
|---------+------------------+------------------+------------------|
|DVBE | $0.305 billion | 1.27% | 1.5% |
|---------+------------------+------------------+------------------|
|Total | $7.20 billion | 29.95% | 21.5% |
------------------------------------------------------------------
------------------------------------------------------------------
|Source: 2011 PUC Annual Report on GO |
|156 |
------------------------------------------------------------------
The results show the utilities are meeting the 5% goal for
women-owned businesses and the 15% goal for minority-owned business
enterprises, but are not yet meeting the 1.5% goal for DVBEs.
Overall, both the dollar value of all WMDVBE contacts and
percentages of contracts have increased for the past two years. The
number of utilities reporting was also up in 2011 with 34 utilities
reporting as compared to 31 in 2010.
Even given some successes, the DVBE category and certain industry
sectors remain underutilized. Section 8.11 of the GO 156
specifically highlights the need for increasing utilization in both
the product and service categories where there has been low
utilization. The 2011 report also highlights the continued need for
progress in professional and technical categories, including legal
and financial services. As proposed to be amended, AB 366 expands
the contracting opportunities for WMDVBEs by making the publicly
held company category more accessible in two of the previously
identified low utilization categories.
5)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
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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 in diversity from 2004 to 2006, revealing that only
three net seats were gained by women and minorities. A more recent
study in 2012 found that women on U.S. boards increased by only 0.5%
in the period of 2009 to 2011.
Encouraging more diverse boards is an important public policy as it
lessens income and equity gaps, generates higher tax revenues, and
contributes the state's overall competitiveness. By modernizing the
state's procurement policies to reflect new cultural, racial and
gender business conditions, AB 366 could be an important policy
change for the post-recession economy.
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6)Concerns and Proposed Amendments : In opening up contracting
opportunities to publicly held companies, this measure has raised
concerns with Southern California Edison (Edison) and the
Greenlining Institute. Edison, who opposes the measure, argues that
publicly held companies are generally more established, larger size
companies with more revenues and assets than traditional WMDVBE
contractors. Edison is concerned that this bill shifts the focus of
the program away from new and emerging businesses and the goals of
GO 156.
The Greenlining Institute, who has taken an oppose unless amended
position, shares some of these concerns and further states that
supplier diversity is fundamentally about promoting ownership and
asset building in communities of color. While they agree that
increasing diversity in corporate leadership is important and
significant, the organization suggests that the two diversity issues
should not be merged in this way.
Staff understands that the author will be requesting the committee
amend the bill to limit the definitional changes to only contracts
for financial and legal services, two areas specifically identified
as needing special emphasis in 2011 GO 156 report. Further, the
author will ask to have the PUC separately report on contracting
activities using the new definitions and to sunset the definitions
after five years. Based on real world experience, the Legislature
would then have an opportunity to review the bill's impact on
contracting activities. At the time this analysis is being written,
it is not known whether these changes impact Edison's position and
is, therefore, a question the Committee may want address at the
hearing.
7)Restrictive Five-Year Limitation : AB 366 requires publicly held
companies to have 51% of the board of directors be DVBEs, women, or
minorities for at least five years prior to certification. While
this limitation will discourage the placement of board members
and/or hiring of executive management for the exclusive purpose of
gaining PUC contracts, it may also be too stringent of a
pre-qualification and completely removes eligibility for newly
incorporated businesses. Perhaps the committee should consider a
two- or three-year pre-qualification. Fiduciary duty should then be
sufficient to control hiring and selection of unqualified or
unnecessary executive staff or board members.
8)Blended Boards : Existing law requires each electrical, gas, water,
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wireless telecommunications service provider, and telephone
corporation with gross annual revenues over $25 million to submit
annually a detailed and verifiable plan for increasing WMDVBE
procurement in all categories. This bill modifies the definitions
of WMDVBEs without addressing how covered utilities would calculate,
for the purposes of establishing the 51% WMDVBE criteria, a minority
women who is also a DVBE vs. a board that includes women, male
minorities, and DVBEs. If the author intends to have blended boards
it may be appropriate to specifically direct the PUC to adopt
guidelines for blended boards.
9)Related Legislation : Below is a list of related legislation.
a) AB 873 (Davis) PUC Procurement Contracts with Water Companies :
This bill requires each water corporation with 10,000 or more
service connections to submit annual plans for increasing
procurement from women- and minority-owned businesses and DVBEs
to encourage each electrical, gas, water, and telephone
corporation that is not required to submit a plan under current
law to voluntarily adopt a plan for increasing women, minority,
and DVBE procurement in all categories. Status: Signed by the
Governor, Chapter 316, Status of 2008.
b) AB 1255 (V. Manuel P�rez) Corporate Board Registries
Notification : This bill, as it was heard in JEDE, would have
enhanced access to information about the range of minority and/or
women candidates qualified to serve on corporate boards by
requiring that the Secretary of State provide corporations a
listing of known registries of potential board candidates.
Status: The bill was amended with different language in the
Senate, 2012.
c) AB 1918 (Davis) PUC Procurement Wireless Telecommunications :
This bill requires the PUC to require specified wireless
telecommunications service providers to annually report on their
progress in increasing contracting with women- and minority-owned
businesses and DVBEs. Status: Signed by the Governor, Chapter
456, Statutes of 2010.
d) AB 2758 (Bradford) PUC Minority and Women Procurement Goal
Reporting : This bill requires the PUC to include in their
required report to the Legislature, the renewable energy,
wireless telecommunications, broadband, smart grid and rail
projects as categories for which utilities should increase
procurement from women, minority and DVBEs, as specified.
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Status: Signed by the Governor. Chapter 475, Statutes of 2010.
e) AB 3678 (Moore) PUC Procurement Goals : This bill codified the
broader parameters of GO 156, and requires electrical, gas, and
telephone corporations (with gross annual revenues exceeding $25
million) to annually submit a detailed and verifiable plan for
increasing women- and minority-owned business procurement in all
categories that includes short- and long-term goals and
timetables, and furnish an annual report. It also required the
PUC to establish guidelines for the plans. Status: Signed by the
Governor, Chapter 1259, Statutes of 1986.
f) SB 2398 (Dills) PUC DVBE Procurement Goal : This bill included
DVBEs in the classes of entities eligible under women- and
minority-owned business programs. A subsequent PUC decision
includes disabled veteran-owned business enterprises (D.
95-12-045) and establishes a 1.5-percent goal for disabled
veteran-owned businesses. Status: Signed by the Governor,
Chapter 516, Statutes of 1990.
REGISTERED SUPPORT / OPPOSITION :
Support
East West Bank
Opposition
Sothern California Edison
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090