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