José Carlos González Vázquez (Ceca Magán Lawyers) | As we already explained in our previous post regarding the ruling of the Supreme Court of April 1, 2022 (here), declaring unconstitutional California Board Diversity Law (AB 989), there was another previous and similar compliant against SB 826, that was expected to be also declared unconstitutional by the same reasons.
Well, on 13 May 2022, Los Angeles County Superior Court ruled in Crest v. Padilla, that California’s Law requiring California-based public companies to have one to three women on their boards of directors violated the equal protection clause of the State Constitution.
The Court concludes that the law created “essentially a quota system for private corporate boards” that requires corporations to “take gender into account.” However, the “general board selection process … does not differentiate between men and women” and is competitive and difficult for any prospective board member”.
The court rejected that the Law furthered a compelling state interest because it would increase gender diversity on boards, boosting “the economy, improving work opportunities for women, protecting taxpayers, public employees and retirees” and “improving corporate governance.”
The expert evidence submitted by the Secretary of State did not “sufficiently address discrimination [and/or] causality nor utilize the most sophisticated, econometric methodologies and current statistical analysis available”, and relied on “testimony of stereotypical virtues of women such as ‘consensus builders’ and ‘less risky behavior in investments.”
The Court considers that the Secretary of State did not point to any “specific, purposeful, intentional, and unlawful discrimination to be remedied.” Instead, it cited “only statistics about the number of women on corporate boards as compared to men, not any specific discrimination”, but “witnesses attributed this difference to “reasons other than actual discrimination, including the lack of open board seats, women’s networking issues, board propensity to select persons that they already know, and preference for choosing CEOs to fill open board positions.”
Will anything change in practice? Probably not, due to the activism of certain funds and proxy advisors that are still determined to impose the “woke” ideology on listed companies.
