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Lawsuit Challenges California's New Boardroom Gender-Equality Law

Board meeting
By Robert Bjornson on December 05, 2019 8:00 AM

It is a statistical reality that women make up about half of the U.S. population. It is also a statistical reality that women are not correspondingly represented in the executive offices of major business.

In an effort to increase the number of women in executive business positions and consequently improve the California economy, the California legislature recently enacted Senate Bill 826, which requires publicly traded businesses to have more women on their respective boards of directors. However, some people believe the bill may harm more than it helps.

Legal Challenges

Legislation that seeks to improve the situations of minority and underrepresented groups have historically faced legal challenges from members of majority groups and accusations of reverse discrimination, and that is exactly what is happening with California's new bill.

A group called The Pacific Legal foundation recently filed a lawsuit against the California legislature because of the new law, claiming that the law violates the equal protection clause of the U.S. Constitution and forces shareholders to favor women over men when voting for board members.

Senate Bill No. 826

According to the bill, publicly traded companies must have at least one woman on their board of directors by the end of 2019. The bill also clarifies that, by 2021, the number of women on a company's board must change relative to the total number of individuals on the board:

  • “If [a company's] number of directors is six or more, the corporation shall have a minimum of three female directors."
  • “If its number is five, the corporation shall have a minimum of two female directors."
  • “If its number is four or fewer, the corporation shall have a minimum of one female director."

Companies that violate the bill's requirements — a violation is considered a director seat that is not filled by a woman for at least part of a calendar year — will be fined $100,000 for the first violation and $300,000 for subsequent violations.

It is important to note that the bill states that companies may increase the number of individuals on their board if they need to hire more women to comply with the new law.

Reception of the Bill

As is the case with nearly every attempt by a U.S. governmental body to regulate business practices, Senate Bill 826 has received both praise and criticism for a variety of reasons.

Some people believe it is a “giant step forward" for American woman, businesses, and the economy, and that the bill brings the U.S. closer to the social values of other western nations; many European nations have had similar laws for many years.

However, opponents of the bill question the constitutionality of the law, believing that the bill violates equal protection due to gender. Governor Jerry Brown — the governor who signed the bill into law — even acknowledged the bill's potential flaws. Whether the bill functions as intended remains to be seen.

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