Column: California’s controversial law requiring women on corporate boards is back in the crosshairs
Three years ago, the California Legislature passed a bill requiring public companies to put women on their corporate boards. The bill set specific quotas, dates by which those quotas had to be met and penalties if they were not met.
It was troubling from the start.
Even Gov. Jerry Brown, when he signed it into law, made it clear he wasn’t sure the new measure would survive court challenges.
The law’s goal — bringing women into the world of corporate leadership from which they have been for so long excluded — is entirely laudable. It’s shameful that corporations haven’t corrected the imbalance themselves. Only 28% of Fortune 500 corporate directors are women, according to a study in 2020 by the recruiting firm Spencer Stuart.
But Senate Bill 826 was just too intrusive. It crossed a line — my personal line, anyway — from progressive reform into government overreach.
The law was, of course, challenged in court. But the lawsuit, brought on behalf of an indignant shareholder by the conservative Pacific Legal Foundation in 2019, seemed dead after a federal judge ruled that the plaintiff lacked standing to sue.
Until late June, that is, when the 9th Circuit Court of Appeals reversed the lower court’s decision, revived the case and sent it back for trial. New briefs are due in the next few weeks.
So the future of the law is once again uncertain.
The law directed every publicly held company with its executive headquarters in California to appoint at least one woman to its board of directors by the end of 2019. By the end of 2021, all five-member boards must include at least two women, while boards with six or more directors need to have three. Companies that do not meet the requirements could face hundreds of thousands of dollars in fines.
Today, hundreds of companies are in compliance (although it’s difficult to know for sure how much is the result of the law). California Secretary of State Shirley Weber says the law is “important to ensuring an equitable economy and inclusive California.” The California Partners Project says there are still 418 California companies that need to fill 563 board seats with women.
I’m not a laissez-faire, free-market evangelist. I support increased minimum wages, higher corporate taxes and strict workplace protections. I also support affirmative action.
But this was the wrong approach.
It is terribly presumptuous of state government to get so deeply and prescriptively involved in the private sector’s business. Do we really want legislators telling shareholders of companies who should sit on their governing bodies?
One big justification for the law — asserted repeatedly in its preamble — was that companies will be more successful and more profitable if they have women on their boards. Some studies suggest that is true; others don’t.
But how best to make money is a decision companies should make for themselves.
Furthermore, it’s not clear that such a drastic measure was necessary. The number of women on boards has been steadily rising on its own. In 2020, the Spencer Stuart report found, 95% of Fortune 500 boards nationwide included two or more female directors, an increase from 56% in 2010. In 2020, 47% of the new appointees to corporate boards were women.
Several months ago, Assemblyman Evan Low (D-Campbell), one of the law’s supporters, told me: “I don’t believe we should leave it to capitalism to solve society’s problems. We’ll use the Constitution and the authority we have to create as inclusive a society as we can.”
But not all problems are government’s to solve. Besides, it’s one thing to remove obstacles to advancement. It’s quite another to set quotas and impose mandates, legislating not just equality of opportunity but equality of outcome.
Many lawyers — and the pending lawsuit — argue that the law violates the 14th Amendment of the Constitution, which forbids any state to “deny to any person within its jurisdiction the equal protection of the laws.” They say it mandates gender discrimination.
“Serious legal concerns have been raised,” Gov. Brown acknowledged. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”
The U.S. Supreme Court has repeatedly ruled in cases in which it has upheld affirmative action programs that specific race- or sex-based quotas are not permissible.
Last year, California followed up the women-on-boards law with a second law mandating that corporate boards must also have members of “underrepresented communities,” a category including African Americans, Latinos, Native Americans, gays, lesbians and other designated groups.
Clearly this is a slippery slope. Why would the state stop at board seats? Why not impose quotas on C-level executives as well? Or on employees generally? Is parity only desirable in the boardroom?
And if we’re mandating diversity for corporations, why not for government too? Why not set aside 50% of the seats in California’s city councils for women? What’s to stop Texas from passing a law mandating a specific number of Christians on boards of directors?
You may laugh, but many countries do set quotas for women in their parliaments, which I also think is a not great idea. It’s an effort to legislate equality — at the expense of democracy.
I don’t think this is the direction the country wants to be heading.
Of course there should be diversity — gender, racial and otherwise — on corporate boards, in the workforce, in politics and everywhere else. And I agree that waiting patiently for that to happen on its own is not the solution. People need to stand up and speak out for the change they believe in.
But heavy-handed government mandates are not the way to do it.
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