A court struck down California's corporate diversity law

Among the many questionable actions of California governor Gavin Newsom was his signing of A.B. 979, a bill requiring publicly held companies with headquarters in the state to have board members from underrepresented communities.  (Since the phrase "underrepresented communities" does not exactly roll off the tongue, going forward, I shall use "U.C." instead.)  Thankfully, a California court put the kybosh on this intrusion into corporate affairs.

The law specified how many U.C. members had to be included based on the size of the board.  A similar law in 2018 required more women on boards.  A company could tick off several boxes if it got a woman who was also a member of one or more of the U.C., which must have been a relief, as the fines for not complying with AB 979 ran into hundreds of thousands of dollars.

The new law immediately ran into problems.  There were murky areas about what constituted a U.C.  The law required the U.C. board member to be seated for only a portion of the year but did not define how small a portion counted for compliance.  And what about biracial or multi-racial board members?  Would they automatically count, or did they have to formally identify themselves as the member of the desirable U.C. to satisfy the law?

Image: Board meeting by rawpixel.  Freepik license.

It was all so confusing that a Harvard Law School Forum recommended:

Do not state a specific intent to comply with AB 979, and do not cite the statute as a reason for selecting one board candidate over another (and do not let your recruiter do so).

  • Given the expected legal challenges to AB 979, stating specific compliance with the law could put the company at risk for getting involved in a public controversy and in potentially expensive litigation.
  • Instead, consider a general statement to the effect that the company is complying with all legal requirements and that the company seeks the best qualified candidate to suit the needs of the company, the board and its stockholders, and takes into consideration many factors, including diversity.

Considering that A.B. 979 required companies to select board members based on physical characteristics rather than their qualifications, the bill was on shaky ground from the moment it was signed into law in 2020.  Judicial Watch, a non-partisan organization dedicated to transparency and accountability in the government, filed a lawsuit alleging discrimination because of the bill's creation of racial quotas.

On April 1, a California court granted summary judgment, holding that the law was unconstitutional on the grounds that "[l]aws that explicitly distinguish between individuals on racial or ethnic, sexual preference, and transgender status grounds fall within the core of the prohibition of the equal protection clause."  In other words, companies are now free to consider how qualified candidates are based on their education and experience rather than fretting about whether they fill the U.C. quota du jour.

Pandra Selivanov is the author of Future Slave, a story about a 21st-century black teenager who goes back in time and becomes a slave in the Old South. 

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