Recently, a California court ruled the state’s racial, ethnic and LGBTQ corporate board quota law is unconstitutional. This decision is an important victory against a patently discriminatory law with far-reaching, adverse implications for the for-profit and charitable sectors.
California Assembly Bill 979, or AB 979, was signed into law in 2020, and required that boards of publicly-traded corporations headquartered in the state include a member from an “underrepresented community” – defined as a person who is Black, Latino, Asian, Native American, Pacific Islander or LGBT – by the end of 2021. The measure stipulated a further increase in the required number of such directors by the end of 2022, depending on the board’s size. The state is required to track compliance with the law and non-compliant companies face fines ranging from $100,000 to $300,000 per violation.
Legal group Judicial Watch sued the state on behalf of several California taxpayers in a case called Robin Crest, et al. v. Alex Padilla (No.20ST-CV-37513) to prevent the state from enforcing AB 979. Judicial Watch argued the law violated the equal protection clause contained in the state’s constitution. The group also asserted the mandate forced companies to consider individuals based only on their membership in a demographic class rather than on the blend of factors that make one unique, such as knowledge, relationships, experience and viewpoints. They noted:
AB 979 and Defendant’s justifications also plainly “embody stereotypes that treat individuals as the product of their race, [ethnicity, sexual orientation, or transgender status] evaluating their thoughts and efforts—their very worth as citizens—according to criterion[s] barred to the Government by history and the Constitution.” In the end, AB 970 is simply a numerical set-aside that amounts to racial, ethnic and LGBT balancing. … ([‘“Racial balancing is not transformed from ‘patently unconstitutional’ to a compelling state interest simply by relabeling it ‘racial diversity.’”].)
The court agreed with Judicial Watch, finding the law to be unconstitutional under California’s constitution.
AB 979 is similar to the state’s corporate gender mandates passed in 2018. Senate Bill 826, SB 826, required each California-based corporation to have at least one female director and between one and three women serving on its board, depending on the board’s size, by the end of 2021 – with similar penalties. This law also faces legal challenges. Philanthropy Roundtable recently filed an amicus brief in the case Creighton Meland Jr. v. Shirley N. Weber, Secretary of State of California.
The Roundtable argued that not only are the gender mandates unconstitutional, but they impose significant burdens on California businesses that will drive them out of the state and drain resources from charitable causes, thereby damaging local philanthropy. As Director of Policy Elizabeth McGuigan explained:
The problem for the charitable sector is simple: less wealth and less money invested in California businesses means less charitable giving benefiting Californians. … [Another] major concern is the possibility these mandates may spill over into the charitable sector, creating a dual punishment of fewer funds and higher compliance costs. The pursuit of diversity is a worthy goal, particularly when it is not limited to merely superficial demographic characteristics. However, efforts like these laws will indirectly and directly impair the work of the charitable sector and cause greater harm than good.