Judge Strikes Down California Law Mandating Women on Boards

The California law mandated that public companies with headquarters in the state have at least two or three women on their boards by 2021, depending on the size of the board. Those that didn’t faced financial penalties.

The lawsuit challenging the mandate was brought by conservative legal group Judicial Watch on behalf of three California residents. The state attorney general’s office defended the case, with the two sides squaring off in front of Judge Duffy-Lewis for the nonjury trial, which concluded in February.

“The plaintiff’s evidence is compelling,” Judge Duffy-Lewis wrote in her 23-page verdict. She rejected the state’s argument that the lawsuit was premature because the government hadn’t implemented penalties or threatened prosecution.

The judge agreed with plaintiffs that the law treats similar board candidates differently based on gender, leaving it to the state to prove that the law meets a compelling public interest, is necessary and is narrowly tailored. “Defendant has not met its burden,” she wrote.

A spokesman for Judicial Watch said the group had no immediate comment, saying it hadn’t yet seen the decision.

The office of California Secretary of State

Shirley Weber

couldn’t immediately be reached for comment.

Last month, another judge in the same state court struck down a law that required public companies in California to have at least one racially, ethnically or otherwise diverse director by 2021. Judge

Terry Green

said that law improperly mandated heterogeneous boards and must protect the right of individuals to equal treatment. That lawsuit was also backed by Judicial Watch.

Other litigation challenges a Nasdaq listing requirement approved by the Securities and Exchange Commission in August 2021. That provision requires companies to disclose board diversity details and, by August, include on their boards at least one director who identifies as female, as a member of an underrepresented ethnic or racial minority, or as lesbian, gay, transgender or queer. By 2025, boards must include two such directors. Companies can sidestep the board membership requirement if they disclose why they have done so.

A lawsuit by the Alliance For Fair Board Recruitment—pending in the Fifth Circuit Court of Appeals with oral arguments tentatively scheduled for August—alleges that the rule’s approval by the SEC violates federal antidiscrimination laws and the U.S. Constitution’s equal-protection clause.

Critics say such rules violate equal-protection principles and force companies to discriminate in hiring directors. Advocates for board diversity mandates say they are sometimes the best way to make significant progress in expanding representation among key corporate decision makers.

With or without mandates, companies have been increasing the number of women on their boards in recent years.

Nearly 86% of California-based publicly traded companies had two or more women on their boards at the end of 2021, while 1% included no women on their boards, according to corporate-leadership data provider Equilar.

Among S&P 500 companies nationally, every board included at least one female director, and 96% included two or more, up from 58% a decade earlier, recruiting firm Spencer Stuart found last year in its annual report on corporate boards.

For the most part, companies have increased board gender diversity as they fill vacancies or by adding additional seats. Women made up 43% of new nonemployee directors last year, Spencer Stuart found. Overall, about 30% of S&P 500 directors were women.

Write to Theo Francis at [email protected]