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Can California Legally Require Women on Boards?

LOS ANGELES (AP) – When then California Governor Jerry Brown signed the nation’s first law requiring women on the boards of publicly traded companies, he suggested it might not survive legal challenges.

Three years later, a judge will begin hearing evidence Wednesday in Los Angeles Superior Court that could overturn legislation credited with giving more seats to women in traditionally male-dominated boardrooms. California law has prompted other states to pass or consider similar laws.

Conservative legal group Judicial Watch has filed a lawsuit claiming it is illegal to use taxpayer funds to enforce a law that violates the equal protection clause of the California Constitution by imposing a gender-based quota. .

“They create a classification that favors or discriminates against one class or another,” said lawyer Robert Patrick Sticht. He said the state did not have a compelling government interest in creating the mandate.

Another conservative legal group has filed a separate lawsuit in federal court, claiming the law violates the equal protection clause of the U.S. Constitution.

Betsy Berkhemer-Credaire, CEO of the advocacy group 50/50 Women on Boards, which supported the passage of the law. She is confident it will stand, but said even if found unconstitutional, pressure from investors would result in more women being appointed to boards.

“The train left the station,” Berkhemer-Credaire said. “I don’t think it will be a serious setback.”

The law required publicly traded companies headquartered in California to have a member who identifies as a woman on their boards by the end of 2019. By January, the boards of five directors must have two women and boards of six or more members must have three. women.

The penalties range from a $ 100,000 fine for companies that do not report the composition of the board of directors to the office of the California Secretary of State. Companies that do not include the required number of female board members may be fined $ 100,000 for early violations and $ 300,000 for subsequent violations.

Less than half of the roughly 650 affected companies in the state said last year they had complied. More than half did not file the required disclosure statement, according to the most recent report.

No company has been fined, although the Secretary of State can, said spokeswoman Jenna Dresner.

The state argued in court documents that it had not used taxpayer dollars to enforce the law. Dresner and the state attorney general’s office declined to comment on the pending litigation.

Supporters of the law have said it has already had a big impact in California and beyond. Washington state passed a similar measure this year, and lawmakers in other states, including Massachusetts, New Jersey and Hawaii, have proposed similar bills. Illinois requires publicly traded companies to disclose the composition of their boards of directors.

Several European countries, including France, Germany, Norway and Spain, require boards of directors to include women.

Before California law came into effect, women held 17% of seats on state boards, according to the Russell 3000 Index of the largest companies in the United States, according to 50/50 Women on Boards. In September, the percentage of board seats held by women was over 30% in California, up from 26% nationally, said Heather Spilsbury, the group’s chief operating officer.

Yet some 40% of California’s largest companies must add women to their boards to comply with the law. As a deadline approaches, Berkhemer-Credaire said “there is a lot of scrambling going on”, although she said she heard anecdotally that other companies were waiting to see how the tribunal would rule.

Adding pressure to the issue, the U.S. Securities and Exchange Commission in August approved the Nasdaq proposal that most of the nearly 3,000 publicly traded companies have at least one woman on their boards, as well. than a person from a racial minority or who identifies as homosexual. , lesbian, bisexual, transgender or queer.

There is no penalty for companies that do not meet the Nasdaq diversity criteria, but they must publicly explain why they cannot comply.

Nasdaq rule and a California law signed last year requiring boards of publicly traded companies to have a member by January from an under-represented community – including blacks, Latinos, Asians , Pacific Islanders, Native Americans, or someone who identifies as gay, lesbian, bisexual, or transgender – are also subject to legal action.

When the California law was proposed, a State Assembly analysis noted: “The use of a quota-type system, as proposed by this bill, to address past discrimination and differences of opportunity can be difficult to defend. Brown signed him amid the fledgling #MeToo movement for sexual misconduct.

“I do not minimize the potential flaws which could indeed prove fatal to its final implementation,” the Democratic governor said in a letter. “Nonetheless, recent events… make it clear that many do not get the message.”

Judicial Watch filed a lawsuit in August 2019 and the Pacific Legal Foundation sued three months later on behalf of a shareholder who said the law would require them to discriminate on the basis of sex. The latter case was dismissed by a federal judge, but revived by a unanimous panel of the 9th United States Court of Appeals.

Although the California Chamber of Commerce opposed the law, it did not join the litigation and no company joined the legal effort led in Los Angeles by three California residents. They have sued under a provision that allows taxpayers to prevent illegal government spending.

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