SACRAMENTO, Calif. (Legal Newsline) – California is defending a legal challenge to legislation passed in recent years that requires corporate boards to include females and minorities or face fines.
The National Center for Public Policy Research filed a lawsuit Nov. 22 in Sacramento federal court, arguing the quotas impose race-, sex- and sexual orientation-based regulations on shareholders because shareholders are who approve board members.
The laws at issue are 2018’s SB 826 and 2020’s AB 979.
“These statutes reflect a necessary remedy enacted by the Legislature, only after many other efforts spanning decades had failed to address discrimination and increase diverse representation on the boards of directors of California corporations,” a Feb. 4 motion to dismiss filed by state Attorney General Rob Bonta’s office says.
Five lawsuits over the laws have been filed. NCPPR, a D.C.-based nonprofit, says the laws affect it because it owns shares in 14 publicly held corporations subject to the diversity statutes.
Figures amassed before the laws took place showed 13% of the boards of publicly traded companies in headquartered had a Latino board member, 16% had an African American member and 42% had an Asian American member. Of the 662 companies, 233 had all-white boards.
The State also says one-quarter of the companies had no females on their boards, despite the fact that companies that did outperformed them.
Addressing these figures was a compelling state interest, the motion to dismiss argues. The laws started by requiring, by 2021, one female member and one minority or LGBT member on boards, with the secretary of state able to impose penalties on companies that do not – if deemed appropriate.
Those quotas went up for the end of 2022, depending on the size of the board.
The State says NCPPR’s lawsuit fails to make an equal protection claim and that it is not ripe for adjudication.
“There is no reason to assume, absent a specific director selection decision or enforcement action, that a covered corporation or the Secretary would not apply AB 979 in a manner consistent with existing non-discrimination law,” the motion says.
“Here, the Secretary has not yet proposed or adopted implementing regulations that would set forth the process and criteria for identifying noncompliant corporations and imposing fines.”
The NCPPR says the laws undermine its efforts to put forward proposals that bar corporations from considering characteristics such as race, sex, and sexual orientation in the selection of directors.