Los Angeles Superior Court Judge Maureen Duffy-Lewis ruled late last week that a California law that required a minimum number of women to be on corporate boards in California was unconstitutional, as it violated the right o equal treatment.
The fight over having a minimum number of women on corporate boards dates back to 2018. That year, Senate Bill 826, also known as the Women on Boards law, was passed by both houses in California legislature after a contentious 8 months battle over it. According to SB 826, any corporation with their executive offices in California would have to have at least one female board member by the end of 2019. Beginning this year, the number was increased to at least 2 female directors if there 5 or fewer directors, and at least 3 in boards that have 6 or more. According to the gender quota law, fines of between $100,000 and $300,000 would be given depending on if there was a failure to report board numbers, to how many times the company failed to meet SB 826.
Aimed at increasing the number of women on corporate boards against calls that corporations were discriminating against women from being placed on boards, them-Governor Jerry Brown signed the bill into law in September 2018. As expected by both supporters and opponents, the bill was immediately challenged in court, with Judicial Watch formally bringing a lawsuit against the state in 2019. While the bill waded through legal challenges, another bill that set racial quotas for corporate boards, AB 979, was also signed into law.
However, 2020 proved to be the high water mark for corporate board quota activists. Going into 2021, Judicial Watch had major lawsuits going against both quotas, including Crest v. Padilla hoping to overturn the gender-based quota. Last month, Los Angeles Superior Court Judge Terry Green tossed out the racial and LGBT corporate board quota law, citing it as so obviously unconstitutional that it didn’t even merit a trial. For many, this meant that the writing was on the wall for the gender-based quota law.
In a ruling dated to last Friday and released on Monday, Judge Duffy-Lewis finally struck down that law as well. In her ruling, Judge Duffy-Lewis said that requiring corporations to have a minimum of board members based on gender violated the equal protection clause of the California Constitution, essentially violating the right to equal treatment.
The trial revealed just how ineffective and unconstitutional the law really was. During the trial, documents from the Secretary of State’s office found that they had warned Governor Brown that the bill would be a non-starter from the get-go and was unenforceable.
“Any attempt by the secretary of state to collect or enforce the fine would likely exceed its authority,” said then Secretary of State and current U.S. Senator Alex Padilla in a letter to Brown.
Released data also found that gender and racial diversity on corporate boards had also been increasing naturally without any help from the new laws, with companies responding by themselves to changing corporate needs, needs to reach out to more people, and wanting to reach more people in a diversifying country.
Opponents to the laws praise the ruling, Opponents decry it
Judicial Watch, which backed the ruling, celebrated on Monday, with JW President Tom Fitton tweeting “Judicial Watch Victory: AP reporting court rules gender quota mandate for corporate boards in California unconstitutional. This comes on heels of another victory against unconstitutional quotas based on race and lgbt status.”
BREAKING @JudicialWatch Victory: @AP reporting court rules gender quota mandate for corporate boards in California unconstitutional. This comes on heels of another victory against unconstitutional quotas based on race and lgbt status. https://t.co/siZOAigVfD https://t.co/7ZgLAgfiGv
— Tom Fitton (@TomFitton) May 16, 2022
“Most companies did not care about this law, even with the threat of fines,” said Charles Kaufman, a New York-based economist who has studied racial and gender diversity in high positions in companies, to the Globe on Monday. “Most corporations and companies know that diversity in gender and race is key for a successful business. You don’t know how to reach one group, that’s a big chunk of business gone. Like for women. They are over half the population. A group fails to reach there, that’s half the market out the window.”
“Plus, for companies, having different people on the board is enticing, especially to younger generations, so why wouldn’t you? The problem is that it takes a significant amount of time to get people to move up the corporate ladder and be ready for the board. You could hire people from the outside, but all companies are doing the same. You could poach an up and comer from one company, but another company could take someone you’ve been grooming from under you too. A lot of lawmakers don’t realize how cutthroat it really is to bring up good board members then keep them.”
“So when there are reports saying that half the corporations in California haven’t met the diversity quotas, which they didn’t, or if most didn’t file, which they also didn’t, it’s not a matter of not wanting to diversify. They do. It just takes time to get people ready or find the right person. Regardless of gender or race too. If California just played it cool and maybe gave an incentive or something instead, it would have naturally been diversified much quicker. Instead they went the legal route, and that just pissed everyone off instead.”
“Now, with both quota laws gone, California corporations can go back to what they were doing: Diversifying their boards at their own pace and getting those experienced people in in time. They wanted progress immediately, but a few years is not enough time in many cases to get, say, a talented female executive ready for the job. And thanks to Judicial Watch, those companies were proven right.”
However, many who backed the diversity laws expressed disappointment on Monday, including Senate President Pro tem Toni Atkins (D-San Diego):
“The ruling is disappointing and a reminder that sometimes our legalities don’t match our realities,” said Atkins on Monday. “More women on corporate boards means better decisions and businesses that outperform the competition. We believe this law remains important, despite the disheartening ruling.”
As of Monday, it is unknown if the state will appeal the ruling.
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