Directed to Diversify
A California law requiring a women’s quota for the boards of public companies faces a stiff legal challenge.
In September 2018, then-California governor Jerry Brown signed legislation mandating that the board of directors of every publicly held company in the state appoint at least one female member or get hit with steep fines. Though Brown himself acknowledged that the legislation would likely face significant legal challenges, he nonetheless declared that he was signing the bill because “recent events in Washington, D.C. and beyond make it crystal clear that many are not getting the message.” That was a not-so-oblique reference to the Senate confirmation hearings of Brett Kavanaugh as a Supreme Court justice, amid accusations by Christine Blasey Ford that he had sexually assaulted her when they were in high school. Just to accentuate his point, Brown added to his statement on the bill: “CC: United States Senate Committee on the Judiciary.”
Kavanaugh, of course, was ultimately confirmed after investigations found a lack of compelling evidence that the assault took place, and now Brown’s legislation faces the legal challenge that could well undo it. Illinois lawyer Creighton Meland, Jr., a shareholder in a California-based public company, has sued the state, arguing that the law “seeks to force him to help to perpetuate sex-based discrimination” because it interferes with 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.” Represented by the Pacific Legal Foundation, Meland’s case will almost certainly have national implications. Shareholders with voting rights in California companies live all around the United States, and if the law is upheld, it will surely encourage other liberal-dominated state legislatures to enact similar legislation.
The California bill’s requirements unfold in stages. All publicly held firms in the state must have one female board member by the end of this year. By the close of 2021, companies must have three female board members if their entire board consists of six or more directors and two females if the board has five members. Meantime, boards with four or fewer directors must have at least one female member. Companies will have to pay a $100,000 fine for the first violation and $300,000 for subsequent violations. Legislators claim that these onerous rules are guided by a study that found women comprised 15.5 percent of board members in the 446 publicly traded companies headquartered in the state that were part of the Russell 3000 stock index. A quarter of those firms had no female directors. “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,” Brown said when he signed the bill.
The law may not survive a stiff constitutional test. The Pacific Legal Foundation brief argues that the so-called Woman’s Quota Act violates the Equal Protection Clause of the Fourteenth Amendment because it discriminates based on sex. The Supreme Court, moreover, has said in previous rulings that any policy that operates in this manner, if it is to pass constitutional muster, must have an “exceedingly persuasive justification” and relate to an important “government issue.” According to Meland’s briefs, “sex-balancing” of boards is not a vital government function. The California law, the brief contends, “relies on a variety of improper gender stereotypes, such as the belief that women board members bring a particular ‘working style’ which will impact corporate governance.” In pursuit of its goal of increasing the number of women directors, the bill operates in a “rigid and arbitrary” manner, creating numerical quotas relating to all publicly owned firms, regardless of their industry and other circumstances, such as a firm’s past record with regard to women on its board or in its workforce.
Ironically, the plaintiff’s case may find support from the California legislature itself. When the bill was debated, the Assembly’s Judiciary Committee said that it “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.” Even Brown acknowledged potentially “serious legal concerns” and “potential flaws” with the bill that “may prove fatal to its ultimate implementation.”
That California moved ahead with this legislation anyway might be described as a prototypical expression of what’s come to be called virtue-signaling—a symbolic but empty act, in this case in the form of legislation fated to get overturned. Of course, the state will have to devote resources to defending this lawsuit, and the plaintiff seeks legal fees from California if he succeeds, as is likely. But that seems of little concern to state officials. After all, it’s only taxpayers’ money.
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