How A New California Law is Getting More Women on Boards

(Source: CalMatters.org) For 46 publicly held companies in California with all-male boards, the clock is ticking.

The corporations, including pharmaceutical, financial and software companies that tend to be on the smaller, younger side, have only until revelers ring in 2020 to name a woman to their boards of directors or face a $100,000 penalty. 

A bill signed into law by former Gov. Jerry Brown in September 2018 required public companies with headquarters in California to name at least one female director by the end of 2019.  The law further mandates that companies with five-member boards have at least two female directors by the end of 2021; corporations with six or more directors need at least three women. The penalties for failing to comply rise accordingly. 

The Golden State became the first in the nation to legislate the requirement for female board members, inspiring lawmakers in Massachusetts and New Jersey to introduce similar proposals. Illinois enacted a pale version of the California law, requiring publicly traded companies to report each year their boards’ demographics and plans to promote diversity.

Researchers tracking the situation in California say the new law appears to be having the intended effect, with more than 90% of publicly traded companies based in the state now in compliance — and with women added to at least two dozen all-male boards just since July. But the measure has also drawn legal challenges, as many observers predicted. 

In acknowledging “serious legal objections” to the law, Brown said when he signed that it was nonetheless important to send a message to the male-dominated business world. That message has resulted in at least two lawsuits. One was filed in November by the libertarian Pacific Legal Foundation, a public interest law firm, on behalf of a shareholder of OSI Systems Inc., a manufacturer of airport security, medical and other equipment based in Hawthorne.

In that suit, filed in U.S. District Court in Sacramento, Creighton Meland Jr., a retired corporate attorney, maintains that the “woman quota” would force him to discriminate when voting for OSI board members. Instead of voting for the best candidate, he said, he would have to consider the person’s sex as well.

OSI, which did not respond to multiple requests for comment, has a seven-member board that includes founder and Chief Executive Deepak Chopra (not the internationally famed holistic medicine proponent).  A news release issued Dec. 12 says the board now also includes a woman — Kelli Bernard, an executive with AECOM, a global infrastructure company, and former Los Angeles deputy mayor. 

“We’re not claiming that the injury to him is having a woman on the board per se,” said Anastasia Boden, a senior attorney with the Pacific Legal Foundation, who is handling the Meland case. “The injury is forcing people to make decisions based on sex.”

That would violate the equal protection clause of the U.S. Constitution, which was meant to create a sex- and race-blind society, she said, adding: “This law … just reduces people back down to their immutable traits.”

An earlier challenge was filed in August by Judicial Watch, a conservative group based in Washington, on behalf of three California taxpayers. That suit argues that spending taxpayer money to enforce the law would violate the state’s Constitution. Jill Farrell, a Judicial Watch spokeswoman, said the case was scheduled to be heard March 9 in Los Angeles County Superior Court.

Both suits name Secretary of State Alex Padilla, whose office handles corporate filings and processes the records of entities that conduct business in California. Padilla has asked a judge to throw out the Judicial Watch lawsuit, saying taxpayers have not been harmed and thus have no standing to sue. Paula Valle, a spokeswoman for the secretary of state, said his office would review the Pacific Legal Foundation suit and “respond in court.” 

Although the number of women in boardrooms is rising, sexual parity remains a distant prospect.

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