May 16, 2022
By Robert G. Brody and Mark J. Taglia
Last Friday, Los Angeles Superior Court Judge Maureen Duffy-Lewis struck down a California law mandating female membership on corporate boards (SB826). The Judge ruled the law was unconstitutional in that it violated Californian’s right to equal treatment.
The law had been on unsettled ground even before passage. Legislative onlookers questioned its constitutionality and then sitting Governor, Jerry Brown, declaring he was signing the bill to send a message during the #MeToo era even though he saw the potential for the bill to be overturned on constitutional grounds.
Despite the nominal penalties and early legal challenges, the law has been credited with improving the balance of women in certain board rooms.
Notwithstanding what many viewed as a positive step to improve gender-balance on corporate boards, the conservative group, Judicial Watch, challenged the law in 2020. They claimed it was illegal for the State of California to use taxes to enforce a law which was in violation of the provisions of California’s Constitution.
At trial the State argued the law was constitutional as it was necessary to reverse a culture of past discrimination which favored men, and that the law was implemented only after other efforts had failed. The State further argued the law did not create a quota system, which would be unconstitutional, as impacted corporations were able to add additional board seats for women without removing male board members from their positions.
SB826’s outcome is very similar to another California law mandating diversity on the boards of directors at public companies which had been ruled unconstitutional back in April of this year. Bill AB979 mandated a minimum number of board seats be filled by members of “underrepresented communities.”
Corporations subject to the now repealed AB979 needed to have at least one person from an underrepresented community on its board by December 31, 2021. And, by December 31, 2022, boards with five to eight members were to include at least two such persons and boards with nine or more directors were to have at least three such persons. For the purposes of AB979, the definition “Underrepresented communities” included people who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual, or transgender.
Going Forward
Notwithstanding its questioned legality and checkered past of SB826, the law helped to narrow the gap between female and male publicly traded corporate boards in California. There has been over a 70% increase in women holding board seats at California’s largest publicly traded companies during the three-year period since the law had passed.
Despite SB826 being found unconstitutional, the movement towards gender balanced boards will likely continue. Whether further legislative efforts will be involved is unknown. Interestingly, Washington State passed a similar law last year, which now appears to be in similar legal jeopardy.
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