California Board Diversity Ruling Emboldens Shareholders

Companies frowning at California’s mandatory board diversification requirement found a legal wrinkle in their efforts to undo the new law—shareholders now being emboldened to sue the state.

The U.S. Court of Appeals for the Ninth Circuit ruled June 21 that a shareholder of OSI Systems Inc. has standing to pursue his claim that the law forces shareholders to possibly violate the 14th Amendment by discriminating based on sex when they’re voting for corporate board directors.

The Ninth Circuit’s “extraordinarily expansive” ruling on the law’s harm to an individual shareholder could result in shareholders challenging more board diversification policies, said Ann ...