The Crest Opinions: Impeding Legislative Efforts to Diversify Corporate Boards

• Jurisdiction: California,United States,Federal
• Citation: Vol. 35 No. 2
• Publication year: 2022
• Author: Written by Rachel Naor*
• topic: Business of Law,Civil Rights,Constitutional Law,Corporate / Commercial,Labor Law,Upcoming Legislation

THE CREST OPINIONS: IMPEDING LEGISLATIVE EFFORTS TO DIVERSIFY CORPORATE BOARDS

Written by Rachel Naor*

It's no secret that most directors on corporate boards in the United States are white men — in 2021, approximately 60% of the board seats at S&P 500 companies were occupied by white men. Several states have tried to address this issue by enacting legislation aimed at increasing board diversity. California was the first state to impose gender diversity on boards when it passed Women on Boards (Senate Bill (SB) 826) in 2018, mandating corporations with executive offices in California to have at least one woman on their board by December 2019 and to add more women in subsequent years. In 2020, California expanded its efforts to increase board member diversity and passed Assembly Bill (AB) 979, mandating those same corporations include at least one director from an underrepresented community by December 31, 2021.

In April 2022, L.A. Superior Court Judge Terry Green ruled that AB 979 was unconstitutional when he granted the plaintiff's summary judgment motion. The following month, Judge Maureen Duffy-Lewis of the same court determined that SB 826 was unconstitutional following a six-week trial. In addition to being a setback to the efforts in California, these rulings pose new obstacles to other existing and contemplated legislation designed to increase board diversity.

WHAT ARE BOARD DIVERSITY LAWS?

Board diversity laws aim to enhance gender and other types of diversity on corporate boards. California's SB 826 applied to publicly traded corporations with their principal executive offices in the State. These covered corporations were required to have at least one female director by the end of 2019, either by filling an open seat or by adding a seat, and by the end of 2021, covered corporations were required to have certain minimum numbers of female directors based on the total size of the board. Covered corporations were required to make an annual filing with the Secretary of State stating the total number of directors and female directors. Failure to timely file this board member information or to meet the minimum requirements was punishable by fines ranging from $100,000 to $300,000.

Similar to SB 826, AB 979 applied to corporations with their principal executive offices in the State. The law required these covered corporations to include at least one director from an underrepresented community by December 31, 2021, and covered corporations were required to have certain minimum numbers of directors from underrepresented communities

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depending on the size of their board by December 31, 2022. The bill...