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Courts Reject CA Board Laws

Two California laws mandating female and minority representation on boards of directors for public companies have been struck down by two separate state courts.

In 2018, California enacted a female representation mandate for corporate boards. Two years later, the legislature expanded that to require a specified number of board seats be allocated to members of statutorily specified underrepresented communities.

But later, a Los Angeles Superior Court judge declared the law regarding underrepresented communities unconstitutional and also enjoined the state from seeking to enforce it.

The court said the state couldn’t demonstrate the law’s racial and other classifications were narrowly tailored enough to address specific harms which the state had a compelling interest in addressing.

The law requiring specified numbers of females be on corporate boards was then overturned by a different Superior Court judge in a separate case.

The judge found that the state failed to show the law was narrowly tailored to address compelling state interests, noting that there is no compelling governmental interest in remedying generalized non-specific societal discrimination.

Both laws are now void and California-based public corporations are not obligated to comply with them. For Nasdaq issuers, however, beginning Aug. 8, an initial board matrix must be filed reflecting board diversity statistics using a Nasdaq template, notes attorney Jennifer B. Rubin of the Mintz law firm.

In addition to the Nasdaq initiative, other states such as Washington, Illinois and New York have passed legislation addressing corporate board representation, she points out.

Statutory initiatives may move the needle toward inclusiveness but should not be the primary drivers of boardroom diversification. Rubin believes. “The California experience demonstrates how legal challenges can derail important initiatives.”

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