There’s a new case challenging both of California’s board diversity laws. The case, which was filed in a California federal district court against the California Secretary of State, Dr. Shirley Weber, seeks declaratory relief that California’s board diversity statutes (SB 826 and AB 979) violate the Equal Protection Clause of the 14th Amendment and the internal affairs doctrine, and seeks to enjoin Weber from enforcing those statutes. The plaintiff, the Alliance for Fair Board Recruitment, is described as “a Texas non-profit membership association,” with members that include “persons who are seeking employment as corporate directors as well as shareholders of publicly traded companies headquartered in California and therefore subject to SB 826 and AB 979.” Will this case be the one to jettison these two statutes?
With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). In 2020, the California Partners Project, which was founded by California’s current First Lady, released a progress report on women’s representation on boards of California public companies, tracking the changes in gender diversity on California boards since enactment of the law. That same year, AB 979 was signed into law in California. That bill was designed to do for “underrepresented communities” on boards of directors what SB 826 did for board gender diversity. (See this PubCo post.) The CPP has just released a new report that not only updates its 2020 progress report on board gender diversity, but also provides data on women of color on California’s public company boards. The takeaway is that, while there has been tremendous progress in increasing the number of women on boards, nevertheless, much work remains “to tap all of our talent and achieve racial and cultural equity. Most women on California’s corporate boards are white, while women of color—especially Latinas—remain severely underrepresented.” In addition to new data, the report offers some strategies for overcoming these deficits in diversity.
Crest v. Padilla redux—AB 979, California’s board diversity law for “underrepresented communities,” faces taxpayer challenge
It didn’t take long. Crest v. Padilla (see this PubCo post), now has a sequel, Crest v. Padilla II. You might recall that, shortly after SB 826, California’s board gender diversity bill, was signed into law, three California taxpayers challenged the new law, filing Crest v. Alex Padilla I in California state court, seeking to prevent implementation and enforcement of SB 826. With AB 979 signed into law just last week (see this PubCo post), the same three plaintiffs have now filed a similar lawsuit challenging this new law on essentially the same basis. AB 979 requires boards of public companies, including foreign corporations with principal executive offices located in California, to include specified numbers of directors from “underrepresented communities.” Framed as a “taxpayer suit” much like Crest v. Padilla I, the litigation seeks to enjoin Alex Padilla, the California Secretary of State, from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law, alleging that the law’s mandate is an unconstitutional quota and violates the California constitution.
Social unrest currently roiling the U.S. body politic has brought systemic racial inequity and injustice into sharp focus. Why, after decades of public statements and corporate commitments to enhancing racial diversity has so little progress been made? Because, as it’s often said, change starts at the top, one avenue to begin to address these issues is to increase the number of African-Americans and ethnic and other underrepresented minorities represented on boards of directors. Yesterday afternoon, California Governor Gavin Newsom signed into law AB 979, designed to do for “underrepresented communities” on boards of directors what SB 826 did for board gender diversity. (See this PubCo post.) As reported in the Sacramento Bee, prior to signing the bill, Newsom said that “[w]hen we talk about racial justice, we talk about empowerment, we talk about power and we need to talk about seats at the table.”
Will companies accede to calls for actions to improve racial and ethnic diversity in hiring and promotion? California considers a new mandate for racial/ethnic board diversity
In this excellent NYT article from early June, the author painfully explores the view of many African-American executives that, notwithstanding the public condemnations of racism by many public companies and the “multimillion-dollar pledges to anti-discrimination efforts and programs to support black businesses,” still, many of these companies “have contributed to systemic inequality, targeted the black community with unhealthy products and services, and failed to hire, promote and fairly compensate black men and women. ‘Corporate America has failed black America,” said [the African-American president of the Ford Foundation]. ‘Even after a generation of Ivy League educations and extraordinary talented African-Americans going into corporate America, we seem to have hit a wall.’” In the article, a number of Black executives offer recommendations for actions companies should take to begin to implement the needed systemic transformation. And now, third parties—from proxy advisors to institutional investors to legislators—are taking steps to induce companies to take some of these actions. Will they make a difference?