In another strike against board diversity quotas, a California court ruled that a law requiring corporations based in the state to meet certain gender-based quotas violates the equal protection clause of the state constitution. The law, signed in 2018 by former Gov. Jerry Brown, required all publicly-traded companies headquartered in the state to have at least one woman on their board of directors. In April of 2022, a similar bill requiring publicly-traded companies in the state to have at least one person from an “underrepresented community” on their board, was also found unconstitutional by a state judge. Both cases were litigated by Judicial Watch. The dual rebukes of board diversity quotas should serve as a warning for lawmakers considering similar bills in their states or exporting the quotas to the philanthropic sector.
The Philanthropy Roundtable has closely followed these cases due to their potential to harm philanthropy. In an amicus brief challenging the racial diversity law in federal court, the Roundtable highlighted the potential for expansion of the quotas from business to the philanthropic sector. The concern is not merely a hypothetical; in 2008 California lawmakers considered legislation requiring foundations to meet specified racial and gender diversity quotas on their board. These board diversity quotas distract nonprofits from their express mission and reduce individuals to their immutable physical characteristics rather than holistic individuals with intrinsic value.
Legally, these rulings bode poorly for attempts to codify racial identity politics into statute. Michael Bekesha of the Judicial Watch told the Roundtable, “… In both cases, the judges determined that the laws did not satisfy strict scrutiny. In part, the courts concluded that California presented little to no evidence that the laws were enacted to remedy specific, individualized discrimination. … The actual purpose of the laws were ‘gender or racial parity’ or ‘gender or racial balancing’ which are not judicially recognized ‘compelling governmental interests.’”
The court rejected the state’s claimed interest in combating discrimination against women because the state could not prove there was discrimination against women in board hiring. Similarly, in the racial quota case from 2022, the court also cited the equal protection clause to reprimand the state legislature for not seeking less burdensome alternatives to encourage more diversity on corporate boards. The court said the state constitution’s equal protection clause guarantees that individuals receive equal treatment before the law, so before offering unique privileges to large groups of people the state must first create neutral conditions that empower individuals to organically achieve the state’s diversity objectives. In other words, individual rights cannot be subjugated to group preferences.
Going forward, California Secretary of State Shirley Weber announced that her office will appeal the ruling, so there is much litigation remaining. There is also parallel litigation by Pacific Legal Foundation challenging the law in federal court. Similar to the Judicial Watch litigation, PLF’s lawsuit claims the board gender quota mandate violates the equal protection clause of the 14th Amendment to the U.S. Constitution. Both the state and federal equal protection clauses are nearly identical.
While litigation continues in state and federal courts, state lawmakers seeking to emulate the California board diversity quota should heed the hurdles this law has faced so far. If legislatures seek to impose more racial or gender diversity among board directors, first they’ll have to prove there is actual discrimination in board appointments. From there, courts will ask if the diversity quota achieves the state’s diversity goals in a manner that treats all individuals equally before the law. Judging from the litigation thus far, courts are skeptical that board diversity quotas as currently constructed can satisfy both superficial diversity objectives and protection of individual liberty.
