A California court has struck down California’s board diversity statute, AB 979 as violating the Equal Protection Clause.
California became the first state to mandate diversity on boards of directors with the passage of SB 826, requiring that publicly held companies (defined as corporations listed on major U.S. stock exchanges) with principal executive offices located in California, regardless of state of incorporation, include minimum numbers of women on their boards of directors. The law mandated a minimum of two women on its board of directors by the close of 2021, with increased minimums for larger boards.
California further expanded board diversity requirements by passing AB 979, which, similar to SB 826, required a minimum of one director from an underrepresented community by the close of 2021. A director from an “underrepresented community” is defined as a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. The law also mandated increased minimums for larger boards by the close of 2022.
SB 826 is currently being challenged as well, though data suggests the number of women on boards has doubled since the law was passed in 2018. In addition, the Securities and Exchange Commission has approved a rule by Nasdaq, set to go in effect this year that will require companies listed on its exchange to disclose the ethnic and gender makeup of their boards and have at least two “diverse” members or explain why they do not.