California court strikes down another law seeking to diversify corporate boards

Late last week, a California judge in Los Angeles Superior Court ruled that the 2018 state law requiring public companies to be headquartered In California, having a minimum number of women on your board violates the state constitution.

The law required companies to place at least one woman on their board by the end of 2019, or face a penalty. California law also requires companies with five directors to have at least two women by the end of 2021, and companies with six or more directors to have at least three women by the end of the same year.

Among the reasons the judge gave for annulling the law: The State “could not sufficiently demonstrate that [the law’s] The use of a gender-based classification was necessary to boost California’s economy, improve opportunities for women in the workplace, and protect California taxpayers, public employees, pensions, and retirees.”

“This disappointing ruling is a reminder that sometimes our legalities do not match our realities,” California Senate President Pro Tem Toni Atkins, co-author of the law, said in a statement. “More women on corporate boards means better decisions and businesses that outperform the competition, that’s a studied and proven fact.”

Last month, another California judge struck down a 2020 state law that requires companies to have a minimum number of underrepresented group directors. That would include people who identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or gay, lesbian, bisexual, or transgender.

When the laws, which both in stages in their terms over time, were passed, the expectation was that their effect would be felt beyond company boards of directors in California, as many companies were headquartered there it also operated in other states and internationally.

It’s unclear what impact the latest rulings will have, as there has been a growing call among institutional shareholders and exchanges like Nasdaq to boost diversity on public boards and increase public disclosure of diversity statistics to investors. And all of that comes amid a broader push for corporations to treat environmental, social and governance issues as a business imperative.

“Those who still fear women in leadership positions need to work to find out because the world goes on without them,” Atkins said.

Julie Hembrock Daum, who heads the North American board practice at executive and board search firm Spencer Stuart, said both California laws increased the number of women and minorities on corporate boards, particularly on boards that were previously very homogeneous. “Most companies decided to take action even though they knew the laws could be overturned,” Daum said.

Now, without the California mandates, companies may not diversify their boards as much as they were required to under the overturned laws, he said. But she expects them to continue to diversify, if not of their own volition, then under pressure from institutional shareholders. “Base [for diversity] has gone up,” Daum said.

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