California passed the nation's first law requiring women on corporate boards, seemingly a victory for corporate gender parity advocates.
Signed into law by then-Governor Jerry Brown, the 2018 bill mandated that every publicly traded company primarily operating out of California have one woman minimum on its board by 2019's close. It also required that by the end of 2021, boards with five or more members have two women directors minimum on its board. Boards with six or more members will now need three women minimum on the roster.
Many appear to be resistant to the law. Not only are companies neglecting to disclose corporate board gender breakdowns — A March 2021 report by California Secretary of State Shirley Weber revealed discrepancies in the number of publicly traded companies reporting women on their boards — but even diversity and inclusion advocates are bristling. Why? One, because these laws can backfire in the fight to advance women past their marginalized status. Two, because the mandate is arguably unconstitutional, experts said.
"While this bill obviously tries to attempt to create more equality in society, it's also creating additional 'lack of merit' regarding who is placed on boards," Kelly DuFord Williams, founder of Slate Law Group, told HR Dive. "If there is a more qualified man to be on a board, but a woman is taking his spot just because the government mandates it, board members may no longer be the most qualified individuals." She compared it to controversy around affirmative action for college admissions.
California's Chamber of Commerce has opposed the law, arguing that the government should not be mandating the composition of internal boards. Williams pointed to the Chamber's take that this mandate "potentially elevates gender discrimination over the aspects of other diversity, such as race and ethnicity." Nodding to intersectionality, she added, "It doesn't truly require board members to be only white women — just women. So, the Chamber's position seems to be that men of other racial and ethnic diversity backgrounds should also have more opportunities to be elevated to these positions."
Employers that don't comply with the law will be slapped with a hefty fine of $100,000 for a first-time violation and $300,000 for a second or subsequent violation. (Companies must place women on the board for at least "a portion" of the calendar year to prevent a penalty.)
However, the chances of corporations being taken to court over this gender diversity seem slim, according to Williams. "It is unlikely that many corporations will be sued for this issue, as much as it will be challenged by the courts and those suing the California government — stating that under the U.S. constitution and the California constitution, the government can't legislate based on 'discrimination,'" she said.
With the board reporting discrepancies in mind, Williams invited employers to consider the seeds of discord sown by implementing this mandate. "Corporations have shareholders, 'proxies' that will vote for shareholders, manners in which board members are elected. How is that going to affect those internal documents — such as articles of corporate incorporation and shareholders agreements — when a woman is nominated that was not voted in?" Williams asked.
"What if they attempt multiple times to get someone who is qualified and they're unable to? What if their internal laws require something different?" she continued. "Obviously, those have to be edited, but can the government mandate the editing of a privately held company — or even a publicly held company — without shareholder consent?"
The answers to those questions remain to be seen, but California's law may be just the beginning: Private-sector pressures like that from Nasdaq and other stakeholders are increasing, too, adding to the D&I movement at the board level.
