Calif. diversity quotas struck down

by Nicholas Goldberg

The state Legislature’s heavy-handed efforts to mandate diversity in California’s corporate boardrooms have been dealt a second blow in just a few weeks.

Last month, Judge Terry A. Green of Los Angeles Superior Court overturned the law mandating that every public corporation in California have at least two members of specific “underrepresented” racial, ethnic and other groups on their boards of directors by the end of 2022.

And on Friday, another Superior Court judge, Maureen Duffy-Lewis, reached a similar conclusion, striking down a separate law requiring a certain number of women on every public company’s board in the state. She said the law violated the equal protection clause of the California Constitution.

This one-two punch will no doubt come as a disappointing setback to many well-intentioned people who were happy that California was on the progressive front lines, imposing pro-diversity rules on stodgy, hidebound businesses.

But disappointing or not, it should certainly not be a surprise.

Even Gov. Jerry Brown when he signed the gender-diversity-on-boards bill into law in 2018 made it clear he was not at all certain it would survive judicial scrutiny.

“Serious legal concerns have been raised,” he said. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”

Brown said he supported the bill’s goals; that’s why he signed it. But whether it was constitutional to impose quotas on private companies, dictating the racial, ethnic, gender and sexual orientation characteristics of company directors, remained dubious. Opponents of the law said it would force companies to discriminate by race and gender in hiring directors.

Like Brown, I’m a supporter of diversity and I share the concerns of the proponents of these laws. But they are simply too intrusive. In my view, they cross a line from reasonable reform into unnecessary overreach.

The law overturned on Monday, SB 826, directed every publicly held company with its executive headquarters in California to appoint at least two women to all five-member boards by the end of 2021; boards with six directors or more needed to have three. Companies that did not meet the requirements faced hundreds of thousands of dollars in fines.

The law struck down last month, AB 979, imposed similar requirements on businesses to appoint directors who were African American, Latino, Asian, gay, transgender or members of several other underrepresented groups.

I’m not a free-market purist who hates all government regulation.

But it’s one thing to set reasonable worker protections or minimum wages or anti-discrimination rules; it’s quite another to mandate who companies must — and by extension, who they must not — bring on board.

One of the arguments in favor of SB 826 has been that having women on corporate boards is good for business and leads to more successful, more profitable companies. But some experts are skeptical of that claim. And besides, it should be up to the company, not the government, to decide how profits should be maximized.

And was the law even necessary? The number of women serving on corporate boards has been rising on its own for years. In 2011, only 58% of Fortune 500 boards nationwide included two or more female directors; by 2021, that number had risen to 96%, according to a report by the recruiting company Spencer Stuart. Women now constitute 30% of all Fortune 500 directors.

Here’s another question. Would the Legislature have been satisfied after it had diversified the boardroom — or would it have set racial and gender quotas for C-level executives as well? Or for the entire company workforce? Why not?

And why just the private sector? Why not set diversity requirements for governments? Perhaps 50% of the seats on the L.A. City Council should be set aside for women.

You may think I’m taking the argument to a ridiculous extreme, but there are plenty of countries that set quotas for women in their parliaments. I can think of at least one country — Lebanon — that reserves seats in the national legislature for members of particular religious sects.

That’s a road we don’t want and shouldn’t need to take in the United States.

SB 826 has already been credited with substantially increasing the number of women sitting on boards of directors in California. Great. I hope that they stay there and grow even more numerous, without the state requirement — and that more people of color, gay people, lesbians and transgender people are appointed as well.

But I hope it happens because ordinary Americans stand up and clamor for it, and because companies become convinced that diversity will be good for them. Not because a bunch of legislators have set quotas making it mandatory.

Nicholas Goldberg is an associate editor and op-ed columnist for the Los Angeles Times.