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Home » Another California board diversity law was struck down, but it already had a big impact.

Another California board diversity law was struck down, but it already had a big impact.

by News Desk

California will appeal a ruling requiring public companies headquartered there to have women to their board of directors, the state’s secretary of state said on Tuesday.

But the legislation seems to have already achieved at least some of its stated goals: getting more women into boardrooms and bringing the question of diversity to the forefront.

Last week, a judge for the Los Angeles County Superior Court, Maureen Duffy-Lewis, ruled that the law, Senate Bill 826, violated the state’s constitution because it wasn’t designed to remedy a “specific, purposeful, intentional and unlawful” instance of discrimination. She added that the state’s claims that diverse boards would directly boost California’s economy could not be proven.

Her decision came about a month after another judge in California struck down a similar state mandate requiring public companies to have board members from underrepresented communities. Judicial Watch, a conservative nonprofit advocacy group which brought both lawsuits, applauded the latest decision for upholding “the core American value of equal protection under the law.”

Introduced in 2018, S.B. 826 mandated that public companies add at least one female director by the end of 2019. By the end of 2021, boards were expected to have at least two or three female directors, depending on company size, and firms that failed to comply risked financial penalties.

The number of companies in California with no female directors at all dropped to 1 percent in 2021, from 28 percent before the law was passed in 2018, according to data from California Partners Project, a gender equity nonprofit that was co-founded by Jennifer Siebel Newsom, the wife of California’s governor, Gavin Newsom. Overall, 31 percent of board seats were held by women in 2021 — more than twice as many as in 2018.

“Today, over half of California’s public companies have three or more women on their board, which is up from 11 percent in 2018,” said Leigha Weinberg, a program director at California Partners Project.

“That really matters because that’s the critical mass threshold where women can really influence board discussions more substantially” rather than be perceived as tokens, Ms. Weinberg added.

According to a report by the accounting firm KPMG published in 2020, a majority of the women added to boards in 2019 were first-time directors, a statistic the firm said was an indication that the law “broadened the candidate pool” to bring in candidates from beyond the board’s usual network.

The law also created ripples in the corporate world, with an increasing number of institutions — like the Nasdaq stock exchange and Goldman Sachs — now demanding leadership diversity from companies that are looking to go public.

“There’s no boardroom in America that isn’t talking about diversity,” said Megan Wang, the chief operating officer at the Boardlist, which helps companies find board director candidates. “The law certainly accelerated something we had been talking about for decades. But we’re in a moment in time where legislation is one lever, and there are many other things at play right now.”

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