California court overturns another law seeking to diversify boards of directors

Late last week, a California judge in the Los Angeles Superior Court ruled that the state’s 2018 law requires public corporations to have their headquarters in California to have a minimum number of women on their boards is against the state constitution.

The law requires companies to place at least one woman on their board by the end of 2019 – otherwise they risk a fine. California law also requires companies with five directors to have at least two wives by the end of 2021, and companies with six or more directors by the end of the same year.

Among the reasons the judge gave for overturning the law: The state “has not sufficiently proved 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, government officials, pensioners, and retirees.”

“This disappointing ruling reminds us that sometimes our legality doesn’t match our reality,” California Senate president pro Tempore Toni Atkins, co-author of the bill, said in a statement. “More women on boards means better decisions and companies that outperform the competition — that’s a studied, proven fact.”

Last month, another California judge overturned the state’s 2020 law that requires companies to have a minimum number of directors from underrepresented groups. That includes 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 that both phased in their tenures over time, were adopted, their effect was expected to be felt outside just California corporate boards as so many companies are headquartered also operates in other states and internationally.

What impact the latest rulings will have is unclear, as institutional shareholders and exchanges like Nasdaq raise a growing call to increase diversity in public administrations and increase disclosure of diversity metrics to investors. And all of this stems from a broader drive for companies to see environmental, social and governance issues as a business imperative.

“For those who are still afraid of women in leadership positions, they need to work on figuring that out because the world will go on without them,” Atkins said.

Julie Hembrock Daum, who leads the North American Board Practice of executive and board search firm Spencer Stuart, said both California laws have increased the number of women and minorities on boards of directors, especially those that were previously very homogeneous. goods. “Most companies decided to take action even though they knew the laws could be repealed,” Daum said.

Now, without the California mandates, companies won’t diversify their boards of directors as much as they were required to under the downed laws, she said. But she expects they will continue to diversify, if not of their own accord than under pressure from institutional shareholders. “The Baseline [for diversity] has been moved,” said Daum.

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