A state law that requires California companies to have women on their boards is facing a legal challenge in Los Angeles, where a trial concluded Wednesday. Since the law passed in 2018, the share of women on boards has increased from 15.5% to 29%.
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Something new happened in boardrooms across California last year: More women joined the governing bodies of public companies than men, according to a recent report from California Partners Project, a statewide organization that advocates for gender equity.
The shift has been noticeable since California passed a law in 2018 requiring at least one woman on the board of each publicly traded company with headquarters in California. Since then, the share of seats held by women has climbed from 15.5% to 29% in just three years, according to the project’s findings.
But supporters say a legal challenge may slow that progress.
Closing arguments wrapped yesterday on a civil trial inside a Los Angeles County courtroom where Judicial Watch, a conservative legal group, challenged the constitutionality of California’s so-called women on boards law on behalf of a few taxpayers. Judicial Watch argued that the law violates the equal protection clause of California’s constitution by explicitly distinguishing between individuals on the basis of gender. The law “would upend decades of settled constitutional law that prohibits discrimination based on sex,” said Tom Fitton, Judicial Watch’s president, in a statement before the trial started.
Under the law, publicly traded companies with headquarters in California needed to add at least one woman to their board of directors by the end of 2019. By the end of 2021, companies with a five-member board needed to have at least two women, and companies with six or more directors needed to have at least three. The judge may uphold the law — or find it to be unconstitutional. After the case is formally submitted, the judge could take up to 90 days to make a decision, according to UC Hastings Law professor David Levine.
While the outcome will be closely watched as California and other states look for ways to diversify top corporate brass, supporters of the current law say all-male boards are increasingly a thing of the past.
What’s changed since 2018?
A new law isn’t the only thing that has changed. In the wake of Black Lives Matters protests, public pressure on companies to diversify their leadership has increased, said Hina Shah, a law professor at Golden Gate University and director of the Women’s Employment Rights Clinic.
Since California passed its law, states including Washington, Oregon and Maryland have passed similar or watered-down versions. In 2020, California policymakers passed another law that requires boards to add people of color, or people who identify as LBGT, though that law is also facing legal challenges.
And in August, federal regulators approved a new rule proposed by Nasdaq that would require companies to have boards that meet minimum diversity standards or explain in writing why they were unable to do so in order to be listed on the stock exchange.
To what extent board rooms changed in response to social pressure versus California’s law is hard to untangle. Still, the number of new women directors jumped to 346 in 2019, when the law’s first deadline approached, up from 176 in 2018 and 121 in 2017, according to California Partners Project.
One argument proponents make is that women often bring different professional experience and skills to the table. Los Angeles agriculture and water delivery company Cadiz added two women to its board in 2019, and a third in 2021, shifting its all-male board to one that’s nearly half women, including two women of color.
While the all-male board’s expertise had been primarily in technical fields and finance, Cadiz board member Carolyn Webb de Macias brought experience in the public sector, as well as in education and community work, which she said was valuable as the company shifted from work on pipelines to identifying and working with communities who would benefit from water access. Since women were added to the board, the company has also changed its corporate governance policies.
“I do think any board that diversifies itself with skills and knowledge, right, gives itself an advantage over those that are stuck in the past,” said Webb de Macias.
Public companies headquartered in California have until Jan. 1 to name at least one female director. The new law has prompted some widely anticipated lawsuits — and some surprising boardroom diversity.
What does it mean if the law gets overturned? Or upheld?
The court’s ruling won’t create a precedent other courts have to follow, meaning that even after this case is decided, another group or company could challenge the law again, on similar grounds. Despite that fact, Levine, the UC Hastings law professor, said the outcome will be watched by policymakers and lawyers in California and across the country.
If the judge’s ruling is persuasive, it could influence how other laws are developed — or how other lawsuits take shape.
If the law is overturned, there may be other ways to achieve board diversity that don’t violate the state constitution, says Levine, namely incentivizing companies to add women rather than mandating that they do. Whichever side loses could also appeal the judge’s decision.
Will California start enforcing the law?
Despite the law being in effect for over two years, the state hasn’t been fining companies that violate the law.
The women on boards law authorizes the Secretary of State to fine companies $100,000 for breaking the law, and fines escalate to $300,000 for repeat offenders. But a state official testified during the trial that the state had not been fining companies, and Deputy Attorney General Ashante Norton said the state has no plans to begin doing so, according to the Associated Press.
“The main reason you wouldn’t be enforcing it is you don’t think it’s legal either,” Levine said.
Even if the judge decides to uphold the law, it’s uncertain whether the state would begin issuing fines. Given that another group or company could challenge the law again, the state would have to feel extremely confident after the ruling to start immediately handing out penalties, Levine said.
CalMatters asked the Secretary of State’s office if it planned to start issuing fines if it wins the case. A spokesperson said they couldn’t comment on pending litigation.
In a letter submitted as evidence during the trial, former Secretary of State Alex Padilla warned then-Gov. Jerry Brown that, while Padilla supported the law’s objectives, the Secretary of State’s office lacked the capacity or authority to collect the fines, according to the AP.
Judicial Watch could not be reached for comment.
Will progress on diversifying boards sputter out if the law is overturned? UC Davis law professor Katherine Florey argues the law has already helped achieve some of its stated purpose.
“I don’t think,” Florey said, “that is going to be reversed if the law is stripped down.”
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