A state trial judge has declared unconstitutional a California law requiring corporate boards to have quotas based on race, sexual orientation, and gender identity, in Crest v. Padilla. The bill applied to at least 500 publicly-traded companies.
The California law, known as AB 979, said that publicly held companies with headquarters in California must have at least one director from an “underrepresented community,” meaning someone who “self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.” That requirement applied to even the smallest corporate boards. But most corporate boards would have to have multiple such directors. Depending on board size, the number of board members from these “underrepresented communities” would have to increase by the end of 2022.
Judge Terry Green found that AB 979 violates the Equal Protection Clause of the California Constitution (Article I, § 7):
The statute treats similarly situated individuals – qualified potential corporate board members differently based on their membership (or lack thereof) in certain listed racial, sexual orientation, an gender identity groups. It requires that a certain specific number of board seats be reserved for members of the groups on the list- and necessarily excludes members of other groups from those seats.
He concluded that the law does not further a compelling state interest:
The broader public benefits produced by well-run businesses do not fit that bill. On the other hand, while remediation of discrimination can be a compelling interest, the state must define a specific arena in which the discrimination has occurred, such as a school district or a specific industry within a particular local jurisdiction. Corporate boards are not such an arena – they cover all industries and all parts of the country. The Legislature did not even attempt to limit its investigation or its findings to California corporations, though jurisdictional restrictions ensured that only California corporations would be covered by the law. And even supposing that corporate boards were a sufficiently specific arena, neither the Legislature nor the Secretary has produced the combination of (a) valid statistical comparisons and (b) anecdotal testimony which could serve as “convincing evidence” of discrimination in that arena.
Accordingly, Judge Green found that the plaintiffs, represented by Judicial Watch, were entitled to “a judgment declaring as much and an injunction preventing the expenditure of taxpayer funds on implementation of the measure.”
This law (AB 979) followed an earlier 2018 law (SB 826) that required that corporate boards include at least one woman. Companies in violation of either law were subject to six-figure fines.
The conservative group Judicial Watch challenged AB 979 on behalf of three California taxpayers, saying it violated California’s state constitution. “Gender quotas and now new quotas for numerous other groups for corporate boards are slaps in the face to the core American value of equal protection under the law,” said Judicial Watch President Tom Fitton in October 2020.
In the higher education context, the Supreme Court has allowed race to be considered as a factor to promote “diversity,” but not racial quotas, which are impermissible as a way of promoting diversity.