Gov. Jerry Brown signed legislation Sunday making California the first state to impose gender quotas on corporate boards, but even he acknowledged that the hotly disputed law may never take effect.
Senate Bill 826 is expected to be challenged immediately on equal-protection grounds for setting up a quota system that will force publicly held companies to bring on corporate directors based solely on their gender.
In addition, the newly signed bill, which includes financial penalties for companies that fail to meet the quotas, applies to all companies headquartered in California, even if they are incorporated outside the state, setting up another basis for litigation.
As Duke University School of Law professor Kimberly Krawiec put it, “Let the lawsuits begin.”
In that case, why sign the bill? Mr. Brown said he was influenced by “recent events in Washington, D.C.,” apparently referring to sexual-assault allegations against Judge Brett M. Kavanaugh that have held up the U.S. Supreme Court confirmation process.
“There have been numerous objections to this bill and serious legal concerns have been raised,” the Democratic governor said in his signing statement. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”
“Nevertheless, recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message,” Mr. Brown said.
The measure will require all publicly traded corporations based in California to have at least one female board member by the end of 2019, and a minimum of two women on five-member boards by the end of 2021. Boards with six members or more would be required to have at least three women by then.
Under the law, “female” includes men who identify as women. Companies that fall short of the quotas face fines of up to $300,000 per violation.
“With the governor’s support of SB 826 today, yet another glass ceiling is shattered, and women will finally have a seat at the table in corporate board rooms,” said Democratic state Sen. Hannah-Beth Jackson, the bill’s sponsor.
Supporters argued that companies brought the law on themselves by failing to diversify on their own. Women hold 15.5 percent of the board seats for California-based corporations in the Russell 3000 index, and about 25 percent have no female directors.
Others warned that heavy-handed government interference isn’t the answer, and could backfire on women climbing the corporate ladder.
“Undoubtedly, many will assume that these new female board members weren’t selected on merit, but to fulfill the mandatory quota,” said Carrie Lukas, president of the Independent Women’s Forum, in a Monday column for Forbes. “Rather than helping women advance, the quota could tarnish the achievements of women climbing the corporate ladder.”
The law has any number of potential challengers. At least two dozen business groups, led by the California Chamber of Commerce, opposed the bill, saying that companies should be able to determine their own boards internally and that prioritizing women would hinder broader diversity efforts.
“CAA is opposed to SB 826 because it is likely unconstitutional and favors one element of a diverse workforce over all others,” Chris Micheli, spokesman for the ambulance association, told the San Francisco Chronicle. “Gender is an important aspect of board diversity, but the state should not elevate this element over all other aspects of diversity.”
At issue during debate over the bill was whether women actually improve corporate performance. Backers of the legislation argued that women are “good for business,” pointing to studies showing strong corporate performance is “associated” with the presence of female directors.
“We are confident this law will be the catalyst for greater prosperity via the brainpower and contributions brought by the unique perspective of women,” said Mindy Bortness, president of the National Association of Women Business Owners California.
At the same time, publicly held companies have reason to be wary, given the lackluster experience of Norway.
After the Norwegian Parliament passed a gender-quotas law in 2006, stock prices plunged, firm values declined, and the number of publicly held corporations fell by 30 percent from 2001 to 2009, according to a study by USC and University of Michigan researchers.
The 2012 paper concluded the quotas led to “younger and less experienced boards” that wound up deteriorating operating performance, “consistent with less capable boards.”
Ms. Krawiec said she was skeptical about the claims that female directors boost firm performance, but said it is possible that the attention could wind up resulting in more women serving on boards.
“I just don’t think the evidence supports that inference at this point,” said Ms. Krawiec. “Whether or not the bill brings more women into the boardroom probably depends on whether it withstands the expected constitutional challenges and, even if it fails in court, whether this whole conversation and effort nonetheless prompts more companies to be attuned to issues of board diversity.”
Several European countries have enacted laws similar to Norway’s, while at least four other states — Colorado, Illinois, Massachusetts and Pennsylvania — have passed non-binding resolutions urging firms to diversify their boards.
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