Can California legally require women on corporate boards?

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California’s First Nations law requiring women on corporate boards is being challenged in court this week on constitutional grounds

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LOS ANGELES — When then-California Gov. Jerry Brown signed the country’s first law requiring women on the boards of publicly traded companies, he suggested it couldn’t escape legal challenges.

Three years later, a judge will begin hearing in Los Angeles Superior Court on Wednesday evidence that could undo a law credited with giving seats to more women in boardrooms traditionally dominated by men. California law has prompted other states to adopt or consider similar laws.

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Conservative legal group Judicial Watch brought the lawsuit that claims it is illegal to use taxpayer money to enforce a law that violates the equal protection clause of the California Constitution by mandating gender-based quotas.

“They are creating a classification that either discriminates against or discriminates against one class or the preference of another,” attorney Robert Patrick Stitch said. He said the state does not have a mandated government interest to create a mandate.

Another conservative legal group has filed a separate lawsuit in federal court claiming the law violates the equal protection clause of the US Constitution.

Betsy Berkheimer-Credere, CEO of Advocacy Group 50/50 Women on Boards, who supported the legislation’s passing. She is confident it will be upheld, but she said that even if it is found unconstitutional, pressure from investors to nominate more women to the corporate board.

“The train has left the station,” said Berkheimer-Kredere. “I don’t think it will be a serious blow.”

The law requires that publicly traded companies be headquartered in California. They must have one member of their board of directors identifying as a woman by the end of 2019. As of January, a board with five directors should have two women and a board with six or more members should have three members. Woman.

Fines range from fines of up to $100,000 for companies that fail to report board compositions to the California Secretary of State’s office. Companies that do not include the required number of female board members can be fined $100,000 for the first violation and $300,000 for subsequent violations.

Of the nearly 650 applicable corporations in the state, less than half reported last year that they had complied. As per the latest report, more than half did not file the required disclosure statement.

Spokesperson Jenna Dresner said none of the companies have been fined, although the secretary of state can do so.

The state has argued in court papers that it has not used taxpayer money to enforce the law. Dresner and the state attorney general’s office declined to comment on the pending trial.

Proponents of the law said it has already had a major impact in California and beyond. Washington state passed a similar measure this year, and lawmakers in other states, including Massachusetts, New Jersey and Hawaii, have proposed similar bills. Illinois requires publicly traded companies to report the makeup of their boards.

Corporate boards are required to include women in many European countries, including France, Germany, Norway and Spain.

Before the California law came into force, women held 17% of seats on company boards in the state, according to 50/50 Women on Boards, which was based on the Russell 3000 Index of America’s Largest Companies. By September, the percentage of board seats held by women in California rose to more than 30%, compared to 26% nationally, said Heather Spilsbury, the group’s chief operating officer.

Still, about 40% of California’s largest companies are required to add women to their boards in order to comply with the law. With a deadline, Berkheimer-Kredere said, “there’s a lot more scrambling going on,” though she said she’s heard anecdotes that other companies are waiting to see how the court rules.

Adding to the pressure on the issue, the U.S. Securities and Exchange Commission in August approved Nasdaq’s proposal that at least one of the nearly 3,000 companies listed on the exchange have a woman on their board, as well as those from a racial minority or who are gay. Identifies as gay, bisexual, transgender or gay.

There are no penalties for companies that do not meet the Nasdaq diversity criteria, but they must publicly state why they could not comply.

Nasdaq rules and California law signed last year require publicly traded corporate boards to have members from an underrepresented community — including Black, Latino, Asian, Pacific Islander, Native American, or gay — by January. Includes someone who self-identifies as gay, bisexual. , or transgender – are also facing lawsuits.

When the California law was proposed, an analysis by the state legislature stated: “The use of a quota-like system proposed by this bill to address past discrimination and gaps in opportunities may be difficult to defend.” Brown signed it amid the budding #MeToo movement over sexual misconduct.

The Democratic governor said in a letter, “I do not downplay the potential loopholes that could actually prove fatal to its eventual implementation. Still, recent events … make it clear that many are not getting the message.” Used to be.”

Judicial Watch sued in August 2019, and the Pacific Legal Foundation filed suit three months later on behalf of a shareholder who said the law would force it to discriminate on the basis of sex. The latter case was dismissed by a federal judge, but revived by a unanimous panel of the 9th US Circuit Court of Appeals.

Although the California Chamber of Commerce opposed the law, it did not sign the lawsuit, and neither company was involved in a legal effort by three California residents in Los Angeles. He filed suit under a provision that allows taxpayers to withhold illegal government spending.

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