California imposes racial, sexual diversity quotas on corporate boards
California Gov. Gavin Newsom (D) signed a bill that requires publically-traded companies headquartered in his state to include on their boards-of-directors members from “underrepresented communities.”
“Underrepresented communities are defined [in the bill] as people who identify as Black, Latino, Native American, Asian American, Pacific Islander, native Hawaiian or native Alaskan,” says USA Today. “Companies can also appoint directors who identify as gay, lesbian, bisexual or transgender.”
Harmeet Dhillon, an attorney and founder and CEO of the Center for American Liberty, testified against the bill calling it a tax on corporations and a violation of the Constitution.
“From a civil rights perspective and a corporate governance perspective, we ought to be encouraging corporations to have the best and brightest directors and that is really a function of the constituents of the corporation which are the shareholders,” Dhillon said.
“For the state to impose that seems well beyond the state’s appropriate role,” Dhillon added. “I don’t know what the governor and his woke agenda have to do with shareholders’ interest. In fact, those are diametrically opposed in California.”
By law, the board of directors is supposed to represent the interests of the shareholders, which is generally defined as increasing the value of the company. Recent reform measures that have sought to require some outside directors, independent of management, have tried to bolster shareholder representation.
But this law is clearly meant to address racial and social grievances, not increase shareholder value.
“AB 979, legislation to require diversity on corporate boards in California just signed into law! This is a big step forward for racial equity. Thank you @GavinNewsom,” tweeted Chris Holden, a Black, California Assemblyperson who was co-author of the bill.
Lost in the celebration over the bill is that serving on boards carries isn’t all sunshine and roses. Board service carries with it some financial liability, with risks to personal reputation from acts of the corporation and personal liability over whistleblower allegations.
“Recent academic studies have confirmed that many individuals pursue board service as a means of enhancing their personal reputation, level of industry credibility and professional credentials,” says Michael W. Peregrine, a partner at McDermott Will & Emery LLP. “Yet derivative litigation, government investigations, and media coverage of corporate controversies typically speak (in the public record) to the conduct of the board. This reputational risk arises regardless of whether the corporation is ultimately vindicated in the process.”
Peregrine cites the personal and financial liability of directors of the company run by disgraced Hollywood mogul Harvey Weinstein as one example where board members took big personal hits from acts conducted by another member of the board.
But the best argument against the new California law is the constitutional argument says legal experts.
Conservative legal champion, Tom Fitton of Judicial Watch, said that any quotas made for corporate boards violate the Constitution.
“We are deeply concerned about the new legislation,” Fitton told reporters according to The Hill. “It’s a violation of the equal protection clause of the U.S. Constitution. It undermines the core legal concept of equal protection.”
PHOTO: Getty Images
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