Something new happened on boards across California last year: More women than men joined the governing bodies of public companies, according to a recent report by California Partners Project, an organization statewide that champions gender equity.
The change has been noticeable since California passed a law in 2018 requiring at least one woman on the board of every publicly traded company headquartered in California. Since then, the share of seats held by women has increased from 15.5% to 29% in just three years, according to the findings of the project.
But supporters say a legal challenge could slow that progress.
Closing arguments ended yesterday in a civil trial in a Los Angeles County courtroom where Judicial Watch, a conservative legal group, challenged the constitutionality of California’s women on corporate boards law. administration on behalf of a few taxpayers. Judicial Watch argued that the law violates the Equal Protection Clause of the California constitution by explicitly distinguishing between individuals on the basis of gender. The law “would overturn decades of established constitutional law that prohibits discrimination on the basis of sex,” Tom Fitton, president of Judicial Watch, said in a statement before the trial began.
By law, publicly traded companies headquartered in California had to add at least one woman to their board of directors by the end of 2019. By the end of 2021, companies with A five-member board had to have at least two women, and companies with six or more directors had to have at least three. The judge can uphold the law — or find it unconstitutional. Once the case is officially submitted, the judge could take up to 90 days to make a decision, according to David Levine, a law professor at UC Hastings.
While the outcome will be closely watched as California and other states seek ways to diversify senior corporate leadership, supporters of the current law say all-male boards are increasingly a thing of the past. .
What has changed since 2018?
A new law is not the only thing that has changed. Following the Black Lives Matters protests, public pressure on companies to diversify their leadership has increased, said Hina Shah, a law professor at Golden Gate University and director of the Women’s Employment Rights Clinic.
Since California passed its law, states like Washington, Oregon and Maryland have passed similar or watered down versions. In 2020, California policymakers passed another law that requires boards to add people of color or people who identify as LBGT, though that law also faces legal challenges.
And in August, federal regulators approved a new Nasdaq-proposed rule that would require companies to have boards that meet minimum diversity standards or explain in writing why they couldn’t in order to be listed on the stock exchange.
How much boardrooms have changed in response to social pressure against California law is hard to untangle. Still, the number of new female directors rose to 346 in 2019, as the first deadline for the law approaches, from 176 in 2018 and 121 in 2017, according to California Partners Project.
One of the arguments made by proponents is that women often bring different work experience and skills. Los Angeles agriculture and water company Cadiz added two women to its board in 2019 and a third in 2021, moving its all-male board to one made up of nearly half women, including two women of color.
While the expertise of the all-male board had been primarily in technical and financial areas, Cadiz board member Carolyn Webb de Macias brought experience in the public sector, as well as in the education and community work, which she said was valuable as the company shifted from pipeline work to identifying and working with communities that would benefit from access to water. Since adding women to the board, the company has also changed its corporate governance policies.
“I think any board that diversifies with skills and knowledge, on the right, gives itself an edge over those who are stuck in the past,” Macias’ Webb said.
What does it mean if the law is overturned? Or confirmed?
The court’s decision will not set a precedent for other courts to follow, which means that even after this case is decided, another group or business could challenge the law again, on similar grounds. Despite that fact, Levine, a UC Hastings law professor, said the outcome would be watched by policymakers and lawyers in California and across the country.
If the judge’s decision is persuasive, it could influence how other laws are crafted — or how other lawsuits take shape.
If the law is overturned, there may be other ways to achieve board diversity that don’t violate the state constitution, Levine says, namely encouraging companies to add women rather than compel them to do so. Whichever party loses, they could also appeal the judge’s decision.
Will California start enforcing the law?
Although the law has been in effect for more than two years, the state has not fined companies that violate the law.
The Women on Boards Act authorizes the Secretary of State to fine companies $100,000 for violating the law, and fines climb to $300,000 for repeat offenders. But a state official said during the trial that the state did not impose fines on the companies, and Deputy Attorney General Ashante Norton said the state has no intention of start doing so, according to the Associated Press.
“The main reason you wouldn’t enforce it is because you don’t think it’s legal either,” Levine said.
Even if the judge decides to enforce the law, it is not certain that the state would start imposing fines. Since another group or business could challenge the law again, the state should feel extremely confident after the ruling to begin imposing penalties immediately, Levine said.
CalMatters asked the secretary of state’s office if he planned to start issuing fines if he won the case. A spokesperson said they could not comment on ongoing litigation.
In a letter presented as evidence at trial, former Secretary of State Alex Padilla warned the then-Governor. Jerry Brown that although Padilla supported the goals of the law, the secretary of state’s office lacked the ability or authority to collect the fines, according to the AP.
Judicial Watch could not be reached for comment.
Will progress on board diversity falter if the law is overturned? Katherine Florey, a UC Davis law professor, says the law has already helped achieve some of its stated goals.
“I don’t think,” Florey said, “that’s going to be reversed if the law is removed.”
CalMatters is a nonprofit, nonpartisan media company explaining California policies and politics.