CA Corporate Diversity Law Struck Down

On Friday, an LA county judge struck down a state law requiring publicly-held companies HQ’d in California to have at least one minority member on their board, ruling it to be unconstitutional. It’s unclear whether the decision will be appealed.

📝 The deets… Under the 2020 law, companies were required to have from one to three board members who self-identify as a member of an "underrepresented community." This applied to:

• Asian, Black, Latino, Native American and Pacific Islander individuals,
• As well as those who are gay, lesbian, bisexual or transgender.

Companies in noncompliance faced fines.

💬 From the judge’s mouth…er, pen: In a 24-page ruling, LA County Superior Court Judge Terry Green found lawmakers didn’t have state-specific stats about discrimination against qualified director candidates. They also hadn’t tried identity-neutral methods, like requiring board members to be selected publicly.

• “If demographically homogeneous boards are a problem, then heterogenous boards are the immediate and obvious solution. But that doesn’t mean the Legislature can skip directly to mandating heterogenous boards.”

🇺🇸 Zoom out: California previously passed a law in 2018 requiring companies to have a certain number of women on each corporate board (it’s currently undergoing legal challenges). Other states, including Maryland and New York, require companies to disclose board diversity statistics, but none have enacted mandatory quotas.

• On a broader level, the SEC has approved a Nasdaq rule, set to go in effect this year, requiring companies listed on its exchange to disclose the ethnic and gender makeup of their boards and have at least two “diverse” members – or explain why they don’t.

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