DEI Takes a Hit in California

The State of California garnered great praise a couple of years ago for advancing the cause of diversity on boards of business corporations by requiring public companies with a principal office in California to include specific numbers of minority community members on their boards.

A recent decision by a Los Angeles judge has struck down the law as unconstitutional, although the State pointed out that no company had ever been fined for a violation and that no tax dollars ever were used to enforce the law.  Fines were permitted, up to $300,000 for multiple violations. In fact, about half of the affected companies did file required compliance reports, which means about half did not.

This may not be the last word in California, and California is not the only jurisdiction with some sort of law seeking to achieve board diversity (not to mention several foreign countries with similar national legislation).  But conservative groups long have opposed such laws favoring minorities and women as a discriminatory quota.

Many companies have adopted efforts to diversify boards even absent legislation, for business reasons or for the poor public optics of failing to diversify; and, for public companies the pressure for diversity can be intense from the public and from the proxy consulting firms that often advise institutional investors as to how they should vote their shares at annual meetings.  Again, this is one arena in which future battles clearly will be joined.

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