Law requiring women on corporate boards may succeed despite constitutional questions

SACRAMENTO — Attorneys say a bill to require women on corporate boards might not survive a legal challenge, but it could still accomplish its goal anyway.

SB 826 demands companies headquartered in California have at least one woman on their boards by 2020. In 2021, this will go up to two women required for five-member boards and three on boards of six or more.

“Everybody is talking about it now,” said Katherine J. Blair, a partner and co-chair of the capital markets practice with Manatt, Phelps & Phillips LLP in Los Angeles.

Blair said she was not sure if the law would survive a legal challenge, and suspects it might not. But she also noted news of Gov. Jerry Brown signing the bill came not just during the ongoing news around the #MeToo movement but amidst the contentious Judge Brett Kavanaugh Supreme Court nomination.

Gov. Jerry Brown noticed too. In a signing statement, he wrote he was aware of “serious legal concerns” and “potential flaws that may indeed prove fatal to its implementation.” But he added, “Recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message.”

“I am not surprised Governor Brown signed it,” Blair said. “I think that it is assumed it will be legally challenged.”

Leading a coalition of two dozen business organizations, the California Chamber of Commerce sent a letter to legislators in August warning of the many ways SB 826 might not be legal. The letter said the bill “considers only one element of diversity.” The chamber argued for “a comprehensive approach” rather than a “mandated quota that focuses on only one aspect.”

“The U.S. Constitution, California Constitution, and California civil rights law all prohibit a business from engaging in the type of consideration SB 826 mandates,” the letter adds. “This places California corporations with executive offices in a legal predicament.”

The letter also argued the law violates the internal affairs doctrine, which holds that only one state should have the authority to regulate the internal affairs of a corporation, because otherwise companies could be pulled between contradictory mandates. This could bar the state from imposing the mandate on companies with their “principal executive offices in California yet are incorporated in another state.”

The chamber did not reply to an email seeking further comment.

But Brown, a former California attorney general, put a legal citation in his bill signing message. “As far back as 1886 … corporations have been considered persons within the meaning of the Fourteenth Amendment. Santa Clara County v. Southern Pacific Railroad Company, 118 U.S. 394 (1886).”

This is the case on which the U.S. Supreme Court’s Citizens United decision partially rests, but it has also been used to argue that government can mandate responsibilities on corporations.

An Assembly Judiciary Committee analysis examined whether the gender requirements would be subject to strict or intermediate scrutiny under the equal protection clause of the Fourteenth Amendment. It concluded that a challenge might have better luck in a California court, which have been more apt to apply strict scrutiny to gender requirements.

Any organization challenging the law must consider optics and timing, said Kristina M. Launey, a partner in labor and employment practice at Seyfarth Shaw LLP in Sacramento. Some companies may find themselves wanting to challenge the law, but waiting for the right set of circumstances.

“I think the question is who is going to do it, a board of directors?” Launey said. “It might only be many years down the road that you have the proper situation to raise it. You wonder though, at what public relations risk?”