Results for: board racial diversity
Board diversity statute for “underrepresented communities” held unconstitutional under California’s equal protection provisions
On April 1, the L.A. County Superior Court granted the plaintiffs’ motion for summary judgment in Crest v. Padilla, the taxpayer litigation challenging AB 979, California’s board diversity statute for “underrepresented communities.” (See this PubCo post.) Unfortunately, at the time, only a minute order was released, which did not offer any explanation of the Court’s reasoning. Now, a new 24-page Court Order, which provides the Court’s reasoning, has been made available, and, in it, the Court concludes that the statute, Corporations Code § 301.4, violates the equal protection clause of the California Constitution on its face. Why? Because, in the Court’s view, § 301.4 treats similarly situated individuals differently based on suspect racial and other categories that are not justified by a compelling interest, nor is the statute narrowly tailored to address the interests identified. Will this case have a spillover effect on the decision currently pending of plaintiffs’ taxpayer challenge to California’s board gender diversity statute, SB 826? According to Reuters, the California State Senator who authored SB 826 said that “the case involved a ‘very different set of facts and distinctly different legal issues.’”
Court grants summary judgment to plaintiffs challenging California’s board diversity statute for “underrepresented communities”
As you may recall, SB 826, the California board gender diversity statute, is not the only California board diversity statute facing legal challenges. In 2020, AB 979, California’s board diversity statute for “underrepresented communities,” patterned after the board gender diversity statute, was signed into law, and it too has been facing legal challenges—in fact litigation brought by the same plaintiffs on the same legal basis. (See this PubCo post.) Framed as a “taxpayer suit” much like Crest v. Padilla I, the sequel, Crest v. Padilla II, sought to enjoin Alex Padilla, the then-California Secretary of State, from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law and a judgment declaring the diversity mandate to be unlawful in violation of the California constitution. As Crest v. Padilla I is awaiting a court decision following a bench trial (see this PubCo post), what’s happening in the sequel? After a hearing on motions by both parties for summary judgment in March, the Los Angeles Superior Court took the matter under submission and, on April Fool’s Day, the Court issued its order. But it was no joke—the Court granted plaintiff’s motion for summary judgment. The state has not yet indicated whether it will appeal the decision. In a statement, the president of Judicial Watch, which represented the plaintiffs, said that “[t]his historic California court decision declared unconstitutional one of the most blatant and significant attacks in the modern era on constitutional prohibitions against discrimination.”
In 2021, the scales tipped toward more women joining boards in California
With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). To measure the impact of that legislation, in 2020, California’s current First Lady co-founded the California Partners Project. In 2020, the CPP released a progress report on women’s representation on boards of public companies headquartered in California, tracking the changes in gender diversity on California boards since enactment of the law. (See this PubCo post.) Now, the CPP has released another report, Mapping Inclusion: Women’s Representation on California’s Public Company Boards by Region and Industry. The new report, the CPP’s third, found “much to celebrate in the progress California has made. All-male boards are a thing of the past—from nearly a third of public company boards in 2018 to less than two percent now—and women hold a record number of California public company board seats.” The report asserts that the “California experiment proves that where there’s a will, there’s a way. Concern that there were not enough qualified women to serve on boards is unfounded.” Most revealing perhaps, the report tells us that, in 2021 “more women have joined California’s public company boards than men, likely for the first time.” But just barely—469 of the 930 directors that started in 2021, or 50.4%, were women. Whether this new statistic is attributable to SB 826 is anyone’s guess—correlation is not necessarily causation and investors and others have also pressured companies on diversity issues—but it certainly helped to dial up the heat.
For the 2022 proxy season, SSGA continues its emphasis on climate and diversity transformation
In his last letter to boards as CEO of State Street Global Advisors, Cyrus Taraporevala (who has announced his planned retirement this year) writes that we are at a “moment of significant transition,” facing many challenges, including a pandemic, climate change and gender, racial and ethnic inequities, that have led to economic disruption and even political instability. How should companies address these challenges? SSGA expects its portfolio companies to manage “these threats and opportunities by transitioning their strategies and operations—enhancing efforts to decarbonize and embracing new ways of recruiting and retaining talent—as the world moves toward a low-carbon and more diverse and inclusive future.” Accordingly, SSGA’s “main focus in 2022 will be to support the acceleration of the systemic transformations underway in climate change and the diversity of boards and workforces.”
Being a “good corporate citizen”: how can ESG be integrated with corporate compliance and board oversight functions?
In light of accelerating concerns about climate change and sustainability, economic inequality, worker safety and racial inequity, companies have faced increasing calls to answer to a variety of stakeholders—stakeholders other than shareholders. These concerns are often collected under the heading of environmental, social and governance issues, sometimes adding in “employees” as a separate “E” category. How should companies that aim to be good corporate citizens identify relevant components of EESG? How does EESG align with existing Caremark compliance efforts? How should we think about incorporating EESG oversight into the board’s organizational structure? Is this another job for the already burdened audit committee? This article, Caremark and ESG, Perfect Together: A Practical Approach to Implementing an Integrated, Efficient, and Effective Caremark and EESG Strategy, co-authored by former Delaware Chief Justice Leo Strine, observes that “boards and management teams are struggling to situate EESG within their existing reporting and committee framework and figure out how to meet the demand for greater accountability to society while not falling short in other areas.” Strine and his co-authors offer a framework for doing just that.
The Conference Board surveys views on corporate political activity for 2022
If you think 2021 was a tough year for corporate political activity, 2022 may be even more challenging.
That’s according to a recent survey from The Conference Board of government relations executives and managers of political action committees. In the survey, 87% of respondents said they expect 2022 to be at least as challenging as 2021, and 42% anticipate that it may actually be worse. In the aftermath of the January 6, 2021 attack on the Capitol, many companies and CEOs spoke out, signed public statements and determined to pause or discontinue some or all political donations. The heated political climate also heightened sensitivity to any dissonance or conflict between those public statements or other publicly announced core company values and the company’s political contributions, further complicating the political environment for companies and executives. In the survey, respondents cited a number of factors that contributed to the difficult environment for corporate political activity in 2021: in particular, 77% cited the frequent emergence of new social and political issues on which companies faced pressure to take a stance. According to the Executive Director of The Conference Board ESG Center, “With the 2022 mid-term election year bringing sustained scrutiny, companies that engage in political activity need to make the affirmative case for why they do so….They should focus on engaging and educating both internal and external stakeholders on how their activities serve both corporate and societal purposes.”
2021 CPA-Zicklin Index shows steady rise in board oversight and disclosure of political spending
In the aftermath of January 6, a number of companies, highly sensitized to any dissonance or conflict between their public statements or announced core values and their political contributions, determined to pause or discontinue some or all of their political donations. Notwithstanding those actions—or perhaps to some extent because of them—the clamor for disclosure regarding corporate political spending has continued. To that end, in March, Senators Chris Van Hollen and Robert Menendez reintroduced the Shareholder Protection Act of 2021, a bill to mandate not only political spending disclosure, but also shareholder votes to authorize corporate political spending. (See this PubCo post.) The chances that this bill will pass in this Senate? Not great. Nevertheless, even in the absence of legislation, investor pressure and public sentiment may well be having some effect. As shown in the new 2021 CPA-Zicklin Index of Corporate Political Disclosure and Accountability (from the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania), the number of companies increasing transparency and enhancing board oversight of corporate political spending, whether on their own initiative or prodded by shareholder proposals, is on a gradual but determined rise.
Another complaint filed against California board diversity statutes
Yesterday, yet another complaint was filed in federal district court charging that California’s board diversity statutes, SB 826 and AB 979, are unconstitutional under the equal protection provisions of the 14th Amendment. This complaint was filed by The National Center for Public Policy Research, which, you may recall, has also filed a petition challenging the Nasdaq board diversity rule (see this PubCo post and this PubCo post). The NCPPR describes itself as “a non-profit 501(c)(3) organization that supports free market solutions to social problems and opposes corporate and shareholder social activism that detracts from the goal of maximizing shareholder returns.” The case is National Center for Public Policy Research v. Weber, and the initial scheduling conference for this case isn’t set to occur until March of next year.
Hearing on board gender diversity statute—will the court issue a preliminary injunction? (Updated)
On October 19, a federal district court judge held a hearing on a motion for a preliminary injunction in Meland v. Weber, a case challenging SB 826, California’s board gender diversity statute, on the basis that it is unconstitutional under the equal protection provisions of the 14th Amendment. The judge had previously dismissed the case on the basis of lack of standing, but was reversed by the 9th Circuit. What did the hearing reveal? (This post has been updated to reflect additional information regarding the hearing. See “At the hearing” below.)
Hearing on board gender diversity statute—will the court issue a preliminary injunction?
On October 19, a federal district court judge held a hearing on a motion for a preliminary injunction in Meland v. Weber, a case challenging SB 826, California’s board gender diversity statute, on the basis that it is unconstitutional under the equal protection provisions of the 14th Amendment. The judge had previously dismissed the case on the basis of lack of standing, but was reversed by the 9th Circuit. What did the hearing reveal?
You must be logged in to post a comment.