Fenwick corporate governance practice co-chair David Bell spoke with The New York Times, Law360 and Daily Journal about a recent trial court ruling that struck down a California law governing board diversity.
The law, Assembly Bill 979, went into effect in 2020, and requires publicly traded companies based in California to have specified minimum numbers of board members from underrepresented communities, including people who identify as “Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or … gay, lesbian, bisexual, or transgender.”
On Friday, a judge in the Los Angeles County Superior Court found that the law violated the state constitution.
Bell told The New York Times that the decision was not a complete surprise, and that California’s gender diversity law may face a similar fate. “Under constitutional principles, the courts have generally been hostile to quotas.”
The law previously withstood several court challenges, but Bell told Daily Journal that there appears to be a key difference between earlier rulings. “I don’t think those prior decisions were on substance. They were around standing questions,” he said. “I think this is the first decision that has been on the merits of the substance of the law.”
If the decision holds up after any potential appeals, Bell said he did not expect it to change much for companies that are already being pushed to diversify their top ranks.
“It has already set a benchmark for expectations by a lot of different stakeholders — institutional investors, employees, customers,” he told The New York Times. “The benchmark exists and those expectations are going to carry forth in the world.”
He also noted to Law360 that many companies have already hit or are close to hitting those benchmarks.
"The realistic expectations of stakeholders are that this is completely achievable, and so they're going to expect that achievement by companies," he said. "When a company's peers all have various levels of diversity on their boards, it would be hard to answer the question, 'Well, why don't you, too?"
Full text of the articles are available in The New York Times, Law360 and Daily Journal. See our related alert for additional discussion of the case and expectations for the future.