A 2018 law that sets a minimum number of women on the board of directors at publicly held companies in California is facing a major challenge in court next year.
A two step law
SB 826, authored by Hannah-Beth Jackson (D-Santa Barbara), is currently being implemented in a few steps. At the end of 2019 all publicly held companies in California must have at least one woman on their board of directors. By the end of 2021 this will be expanded, with boards having five members having to have at least 2 female members and boards with six or more members being legally required to have at least three female members. Fines for not complying are in the six figures.
Former Governor Jerry Brown signed the bill in September of 2018. According to Brown, his main reason for signing the bill was because of a very noticeable gender-gap. Of all the board members of the 446 large publicly traded companies in California, only 15% were women. 25% had no female board members at all.
“Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America,” stated former Governor Brown upon signing the bill last year.
Expected legal challenges
Many legal challenges popped up immediately after the signing, but this wasn’t a surprise to lawmakers. The California Assembly’s Judiciary Committee even noted during committee discussion that SB 826 “would likely be challenged on equal protection grounds and the means that the bill uses, which is essentially a quota, could be difficult to defend.”
And this week the second such lawsuit was brought up. Illinois-based shareholder Creighton Meland, Jr. has filed a suit through the Pacific Legal Foundation. Meland is arguing that the ‘woman quota law’ is sex-based discrimination because it goes against his “right to vote for the candidate of his choice, free from the threat that the corporation will be fined if he votes without regard to sex.”
According to the lawsuit made out against California Secretary of State Alex Padilla, SB 826 goes against the equal protection clause of the Fourteenth Amendment. More specifically, it points out “discrimination based on sex.”
Meland Vs. Padilla
“What they’re trying to show is that this is not only sexual discrimination, but they have no reason to do it, explained attorney Keith Schreiber. “They can make the case that they promote qualified candidates over those based on personal attributes. They can also say that every company is different based on dozens of different factors, and that a ‘one-size-fits-all’ law like this would force drastic, company hurting changes for companies to comply.”
“There is also no provision saying that companies that have all female boards must have men.”
“The bill can stay if it’s argued that having equally gendered board of directors is directly tied to the government, but there is no reason to, at least no presented reason.”
“Everyone agrees that more women should move up, but forcing it and not allowing companies the time to quickly attract qualified women to board roles, or attract female shareholders for a board role, can prove to be disastrous. Or companies will simply add more board members past the three women required for larger boards.”
“There have been a lot of ‘female workplace empowerment’ programs in California for a few decades that are pushing women up past glass ceiling after glass ceiling, and more going on boards was bound to happen organically in the near future anyway. The question is, ‘is it legal to force companies to do it now under penalties of quarter-million-dollar fines?'”
Meland Vs. Padilla is expected to be heard next year with a ruling also expected to be announced before the 2021 step of SB 826.
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