California Race, Gender Quotas for Boards Face Legal Test (1)

California faces a federal court challenge to state laws that require public companies to diversify their boards, including a first-in-the-nation mandate requiring companies to include minorities.

The “quota regime” imposed by laws that call for gender and racial balance violate the U.S. Constitution and hurt others seeking corporate director positions, the Austin, Texas-based Alliance for Fair Board Recruitment said in a complaint filed Monday in Los Angeles. A separate group had earlier filed two suits against the laws in state court.

The Alliance for Fair Board Recruitment is led by Edward Blum, the longtime conservative activist and affirmative-action foe. Blum spearheaded an unsuccessful legal fight by Students for Fair Admissions Inc. to stop Harvard University from using race as a factor in admissions. An appeal is pending before the U.S. Supreme Court. He also was involved in a successful challenge to limits imposed by the Voting Rights Act, after the Supreme Court ruled in favor of Shelby County, Alabama, in 2013.

California Governor Gavin Newsom in September signed into law the nation’s first mandate for boards of directors to seat members of underrepresented communities on boards. An earlier law, enacted in 2018, requires public corporations to have at least one woman on their boards of directors, with penalties ranging from $100,000 to $300,000 for violations.

The requirements harm pensioners and other investors by reducing shareholder value, the nonprofit said in its complaint. If California had looked at research on diversity issues, it would see that “the imposition of race and sex quotas on corporate board hiring is unlikely to bring California’s corporations even one red cent,” the group said.

The laws also are being challenged in state court by another conservative activist group, Judicial Watch, which claims in two separate suits that it is illegal for California taxpayer funds to be used to further laws that discriminate on grounds of sex and race.

A spokesperson for California Attorney General Rob Bonta didn’t immediately respond to a request for comment.

The case is Alliance for Fair Board Recruitment v. Shirley N. Weber, 2:21-cv-05644, U.S. District Court, Central District of California (Los Angeles).

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To contact the reporter on this story:
Malathi Nayak in San Francisco at mnayak21@bloomberg.net

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David Glovin at dglovin@bloomberg.net

Peter Blumberg, Steve Stroth

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