As women on corporate boards requirement is challenged, its impact is questioned

Is California's law requiring women on corporate boards having its desired effect? And is it legal? Both of these remain open questions as litigation against the legislation drags on.

Reached on Thursday, the president of the group behind the lawsuit pointed to another pending bill.

"We're also concerned about moves to expand the quota mandate to include race," said Tom Fitton, president of Judicial Watch, a conservative legal organization based in Washington, D.C.,

Filed on June 29, the new bill, AB 979 aims to require minority representation on private corporate boards. It closely mirrors the language of SB 826, the law requiring a certain number of women on company boards, which passed in 2018.

Assemblyman Chris Holden, D-Pasadena, introduced AB 979 by replacing the language in an unrelated bill. It would require members from what he called "underrepresented communities" to hold two seats on boards that have four to nine members, and three on boards of nine or more by the end of 2022.

However, it is unclear what prospects the bill has in a shortened legislative year with both the Assembly and Senate on an extended summer recess due to the coronavirus.

Judicial Watch sued to block SB 826 last year. It claimed the law violated the Equal Protection Clause of the U.S. Constitution as well as parts of the California Constitution. It also argues a similar law in Norway led to "younger and less experienced boards." Crest v. Padilla, 19STCV27561 (L.A. Super. Ct., filed Aug. 6, 2019).

Last month, Los Angeles County Judge Maureen Duffy-Lewis ruled against the state's attempt to dismiss the case. Citing multiple precedents, she found the three California plaintiffs have standing as taxpayers. The case is now in discovery -- Judicial Watch is seeking to subpoena multiple state officials -- and headed toward a jury trial next June.

A separate federal challenge to SB 826 brought by the Pacific Legal Foundation was dismissed on standing grounds in April. Meland v. Padilla, 2:19-cv-02288-JAM-AC (E.D. Cal., filed Nov. 13, 2019).

Even some who support the goals of SB 826 have questioned whether it would stand up in court, though so far it has. When he signed it, Gov. Jerry Brown included a note stating, "Serious legal concerns have been raised ... that may prove fatal to implementation." But he added that other efforts to increase board diversity had mostly failed.

What does seem clear is that the law authored by Senate Judiciary Committee Chair and attorney Hannah-Beth Jackson, D-Santa Monica, has been a public relations success. SB 826 sparked nationwide press coverage and led to similar bills in legislatures in several other states.

On Thursday California State Treasurer Fiona Ma announced she was teaming up with the Thirty Percent Coalition, a group named after the minimum female representation it would like to see on boards.

Ma and the organization's executive director, Charlotte Laurent-Ottomane, will hold two webinars. The first, in August, will educate women on how to pursue a board seat. In September, they'll hold one for CEOs on how to find female board members and promote diversity.

"California's gender diversity law is helping to achieve this goal, but it appears help is still needed in bringing women and corporations together," Ma said in a news release. "Progress has been slow."

But an April report from the group 2020 Women on Boards found 2019 was a banner year for the cause. "For the first time in history, in 2019 all but one of the 25 largest IPOs had women on their boards," it stated. "Women held 21.9% of all company board seats, up from 11% in 2018."

This matches figures from Equilar Inc., a business research company based in Redwood City, showing about 21% of corporate board seats are held by women. A legislative analysis of SB 826 in 2018 said 15.5% of corporate board members in California companies were women.

Of 330 publicly-held, California-headquartered companies affected by the law that filed 2019 corporate disclosure statements, 282 had satisfied the requirements of SB 826 to report the gender makeup of their boards. That's according to "Women on Boards," a report published in March by Secretary of State Alex Padilla as required under the law.

However, the stronger requirements of SB 826 will kick in next year. By the end of 2021, companies will need to meet actual quotas: one woman for boards of four or less, two for boards of five, and three for boards of six of more.