In California, all publicly-traded corporations incorporated or headquartered in the state are mandated by law to have a certain number of female board members. As you know, the Philanthropy Roundtable filed an amicus brief in support of the Pacific Legal Foundation’s lawsuit (Meland v. Weber) to challenge this law on the grounds that it forces companies to discriminate on the basis of gender in their board member selections.
A district court dismissed the Meland case on procedural grounds, finding that the plaintiff lacked the standing to sue. However, on June 21, the U.S. Ninth Circuit Court of Appeals reversed the lower court’s decision. This means the case has the greenlight to move forward and be argued on its merits. This is an important victory in the fight against a patently discriminatory law.
As a reminder, Meland v. Weber pertains to a California law imposing gender mandates on public corporations incorporated or headquartered in the state. Each corporation is required to have had at least one female director by the end of 2019 and one, two, or three women depending on the size of the board by the end of 2021. The law also imposed reporting requirements to demonstrate that corporations are in compliance with the law. These disclosures would provide ample ammunition for public shaming and pressure campaigns by activists, stakeholders and staff. Non-compliant companies could be penalized with fines ranging from $100,000 to $300,000 per violation.
Creighton Meland, Jr. is a shareholder of OSI Systems, Inc., a California-based publicly-traded company. He sued the state arguing that the law discriminates on the basis of sex in violation of the Equal Protection Clause, and it actually seeks to force shareholders like him to perpetuate sex-based discrimination.
Without tackling the merits of his argument, the Ninth Circuit Court found that Meland did have standing to sue the state. The Court explained in its opinion: “We have long held that ‘[a] person required by the government to discriminate by ethnicity or sex against others has standing to challenge the validity of the requirement, even though the government does not discriminate against him.’”
Also, contrary to what the state argued, the Court held that shareholders are objects of the mandate just as the corporation itself, and plausibly, Meland had suffered an injury which gave him standing to sue.
As a shareholder, Meland was subject to the “coercive effect” of that law—meaning that in order to avoid the potential monetary penalties on the corporation, he is “required or encouraged to make discriminatory decisions in voting for board members.” California may have intended to address what it perceived as gender discrimination impeding women’s progress, but did so by forcing board members to engage in the very practice it seeks to eliminate: discriminating based on gender.
This case has broad implications. California has signed into law similar race-based board quotas. Corporations are required to have at least one director from an “underrepresented community” by the end of 2022. Litigation is pending against this racial quota law to prevent it from being enacted. Meland will likely impact legal challenges to the new race-based board quotas.
Foundations and charities are watching this case closely. The Roundtable believes that a strong private sector creates the wealth that makes philanthropy possible. Quota mandates not only control companies’ internal decisions, but also impose regulatory costs and penalties that will hit smaller, younger firms harder. Increased costs and onerous fines leave fewer funds available for giving.
In addition, these requirements add to the growing regulatory burdens that are driving companies out of California along with their employees and philanthropic dollars. This flight will leave fewer resources for nonprofits to serve communities. As we continue to recover from the pandemic, now is not the time to siphon funds away from organizations struggling to fill needs or rebuild communities.
The government cannot pursue the laudable cause of equality by advancing discriminatory practices. Americans should be concerned about movements like this picking up steam across the country. It’s for this reason that the Meland case is so crucial.