Effective September 2018, California has passed a new law that would require publicly traded corporations to put women onto the board of directors. This is clearly unconstitutional under federal law, based on the 14th Amendment, equal protection principles, and civil rights laws which protect individuals from sex discrimination on the basis of gender. The new law which goes in effect in 2019 requires at least 3 women to serve on the board of directors for every public company with executive offices based in California that have at least 6 board members.

The board of directors, pursuant to corporate law, is a group of individuals that oversee the company and are elected by the shareholders at annual meetings. Board seats are generally reserved for individuals who have significant investments in the company or are experts in the field. They elect the CEO and other corporate officers and are replaced by shareholders if the seats are vacated. They exercise significant control and direction over all major decisions and affairs of the company. It is one that is decidedly based on merit and a free and fair election process.

The text of the new law states:

This bill, no later than the close of the 2019 calendar year, would require a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California to have a minimum of one female, as defined, on its board of directors, as specified. No later than the close of the 2021 calendar year, the bill would increase that required minimum number to 2 female directors if the corporation has 5 directors or to 3 female directors if the corporation has 6 or more directors.

It is unclear how the new law will be implemented. Would it require companies to fire men from existing board seats and replace them with women, even if they are less qualified? Apparently it applies to foreign corporations that have “executive offices” in California. Does that mean that even companies that have incorporated in other states such as Delaware, Nevada or Texas would be forced to implement sex based discrimination on their boards if they have an “executive office” in California (whatever that means)? As it stands right now, most publicly traded companies are incorporated in Delaware or other more corporate friendly states where taxes are lower and there are fewer regulations.

The legislative history of SB 826 cites to alleged studies that claim that women on board seats increase corporate profits and ensure gender diversity in the workplace. This is utter nonsense. Board seats go to those who are most qualified to carry out the business agenda of the incorporation and increase profits and shareholder returns, not to implement social justice policies at companies. The top corporations in the country such as Apple, IBM, Boeing, etc. thrive because they elect officers and directors that understand the technology and business of the company; and not based arbitrary classifications such as gender, race or sexual orientation. Many of these corporations have women board members, but that decision is based on merit and seniority, not government social experiments into private corporate affairs.

Further, under the new law is unclear as it who or what is defined as a female. According to the law, “Female” means “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.” Does this mean a male or transgender who decides to self identify as a female automatically qualifies for a board seat?

The new law is a complete regulatory and legal disaster, and one that will ensure that more companies will exit California as they have been doing in record numbers. Moreover, the law is unconstitutional as it requires that men with existing jobs on board seats be prematurely retired, fired and lose their positions to make way for this new female based quota, a discriminatory gender based classification. What’s next? Should we also require companies to have at least one Black, Mexican or other race or religious based quota on the board to simply to increase diversity?

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