Last month, California Governor Gavin Newsom signed into law a bill that would require publicly traded businesses headquartered in California to appoint a minimum number of individuals from "underrepresented" groups to their respective board of directors.
On the surface, this is a well-intentioned move to diversify corporate boardrooms and increase racial representation at the highest levels of business. But is the new law even constitutional? And could the fate of a similar law passed in 2018 bring down this one as well?
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| I can tell you from experience, those chairs aren't nearly as comfy as they look. |
Breaking Up the Boys Club
Back in September 2018, as the #MeToo movement was making headlines, then-Governor Jerry Brown signed into law a bill that required publicly traded corporations headquartered in California to appoint at least one female to their respective board of directors by the end of 2019 and at least three by the end of 2021. Many activists hailed this as a victory to gender equality.
There's just one problem with the law: It's very likely unconstitutional.
You see, both the California state Constitution and the United States Constitution prohibit discrimination based on sex, race, and other classifications. The quota system set up by this law likely violates both constitutions by requiring that a certain number of positions on each corporate board be "earmarked" for people of a specific sex.
Furthermore, those close to this law were well aware of its shaky legal footing. The California State Assembly floor analysis of the law admitted that "The use of a quota-like system, as proposed by this bill... may be difficult to defend.” Even Governor Brown, who signed the bill into law, said that “serious legal concerns have been raised” about the law and that “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”
Standing Up
For all intents and purposes, both the California State Assembly and the Governor admitted that the bill was unconstitutional even as it was being signed into law. However, the hope among the law's supporters was that no one would choose to challenge it in court.
For almost a year, the strategy seemed to work. No corporations sounded the alarm over the law, and it seemed like all would comply (or at least pay the required fines for non-compliance, which are quite small) quietly. However, in August 2019, a group filed a "taxpayer suit" against the law, arguing that since the law is blatantly unconstitutional, the State of California cannot use taxpayer funds to enforce it.
Whether this suit would be allowed to move forward based on legal standing has been an open question (a similar suit filed in November 2019 was dismissed for lack of standing). However, this past July, the court ruled that the group did have legal standing to challenge the law, allowing the lawsuit to move forward.
Dominoes
The problem for the racial diversity law signed by Governor Newsom is that it's essentially a carbon copy of the gender diversity law signed by Governor Brown, only with the gender quota replaced by a race quota. If the gender diversity law is struck down in court, the racial diversity law will almost certainly fall as well.
Just as a side note, if you're wondering were Affirmative Action fits into this, the Supreme Court held (in Regents of the Univ. of Cal. v. Bakke) that since Affirmative Action is not tied to a strict numerical quota and race is only one of many factors considered (that is, race alone cannot "disqualify" someone from admission), it is permissible under federal law (this is where Harvard got in trouble recently, as it has been accused by the Justice Department of engaging in "racial balancing", which is not deemed permissible based on the ruling).
My Take
For me, the purpose of this post is not to criticize the merit of diversity on corporate boards. Instead, I criticize the clumsy and unconstitutional way the State of California has attempted to mandate diversity in the boardroom.
There are many who may argue that the ends justify the means. Well, if the means in question violate constitutionally protected rights of individuals, then what use are those rights? That line of reasoning is a slippery slope that could be used to justify trampling on the rights of any group or individual in order to achieve a "righteous" goal.
You can support an end goal without supporting every route suggested to get there. For example, my brother and I both support the principle of Net Neutrality (we both work in IT, so it's a relevant topic for us). However, he supports Title II reclassification of ISPs as a "Common Carrier" by the FCC, while I believe Congress should pass legislation protecting Net Neutrality (instead of the FCC repurposing regulation from the 1930s that was intended to regulate telegraph monopolies, but I digress...).
Ultimately, with any worthwhile undertaking, both the ends and the means must be fair. After all, if the cure is as bad as the illness, then what's the point?
