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California’s Board Diversity Requirements Struck Down

In 2018, California enacted a law requiring companies incorporated in the state to add women to their boards. More specifically, the law required boards with at least five members to have at least two women and boards with at least six members to have at least three women. The law worked. "[M]ore than 2,000 new board seats [were now] held by women" in the state, according to one of the lead advocates for the law. However, in May 2022, a Superior Court judge struck down the law for violating the Equal Protection Clause in the state's constitution. The judge applied a strict scrutiny standard that required the state to show a compelling state interest, the necessity of the law, and a narrow tailoring to the state's goals. The court said remedying societal discrimination and generalized non-specific allegations of discrimination did not reflect a compelling governmental interest. The state needed to show the court more evidence of specific unlawful discrimination for this remedial action. The court said the imbalance seemed to result from a lack of open board seats, women's networking issues, and the boards' preference for choosing CEOs. The court also said the state did not show it considered gender-neutral alternatives to remedy "specific, purposeful, or intentional unlawful discrimination" against women. The state indicated it intends to appeal this decision.

In April 2022, another Superior Court judge struck down a California law requiring public traded companies to include members from underrepresented groups, including people of different races and ethnic groups and individuals who identify as members of the LGBTQ community. The group opposing the law argued it unconstitutionally mandated quotas. The judge asserted the state failed to consider other means to address the issue, such as altering the selection process for boards of directors. The NASDAQ requires companies on its exchange to disclose the gender and ethnic makeup of their boards. They must also have at least two diverse members or explain why they do not. While other states also require diversity statistics, they do not require specific numbers of underrepresented groups on their boards.