A Tale of Two Trends: ‘Women on Boards’ Laws in the US and Internationally – Legislation Successful Even When Overturned, by Helen D. (Heidi) Reavis with Anna Beckelman and Claire Griffin
The Debate
There have been two prevailing sets of arguments in the debate over implementing corporate board quotas (“CBQs”) in the US and internationally, aiming to counter gender inequality in the business penthouse.
Rocket to the Top
One set of reasoning argues that social norms and sexist ideologies are not evolving fast enough, so that legally mandated CBQs are the quickest (and perhaps only) path for women in significant numbers to reach the highest levels of authority in public companies, on the board and then across the board. Women need an express to the top because the squeaky elevator hitting all the floors is just too slow and not reaching the upper levels fast enough. Put another way, the theory goes that women need to be mandated in leadership positions first, before patriarchal systems will allow them to be there on their own.[1] Once at the top, equality will trickle down. This theory is more aligned with the European approach to CBQs.
The Squeaky Wheel
The other prevailing set of reasoning explains that the solution to the absence of women in senior leadership roles on public boards lies not in required CBQs, but rather in company policy changes that promote impartiality as a practical matter.[2] This theory is rooted in confidence in incremental change, and tempered by concerns over legislative and constitutional law violations. Put another way, mandated change ahead of social evolution puts gender profile ahead of individual qualifications and is discriminatory. Equality will trickle up with reasonable encouragement. This theory is more aligned with the American and Australian approach to CBQs.
Hard vs. Soft Quotas
In CBQ parlance, “hard quotas” refer to legislative mandates, where there are specific percentage or numeric quotas for women serving on public boards, paired with serious corporate consequences and punishment (such as fines or closure) for not meeting those legal requirements.[3] “Soft quotas” operate more as incentives and are policy driven – such that when companies fail to meet them, they can no longer receive benefits (such as tax rebates) and are open to liability on a case-by-case basis in connection with policy violations.[4]
As discussed below, an interesting twist on hard versus soft quotas is the demonstrated success of legislative initiatives in the US despite being blocked or overturned by the courts. The political and public relations pressures alone surrounding such legislative initiatives have fueled the engine of progress and resulted in tremendous advances of women in the public board room even despite such legislation “failing.”[5]
Progressive Trends at Odds
We observe that the soft quota, “incremental change” approach, squares more consistently with progressive trending in jurisdictions moving away from explicit binary individual identification, such as New York State, which recently announced that New Yorkers can now choose an “X” gender marker on their New York State Driver’s License and Identification Cards.[6] Hard quota mandated gender representation on public company boards is inconsistent with non-binary gender identification.
We also observe that this debate – evolutionary social progress versus mandated entry – is resonant of other gender-related dialogues such as transgender participants in gender-binary sports, where groups advocating for greater gender and transgender equity and inclusion appear to have similar goals but disagreements about how best to get there.
Recent US Initiatives and Decisions
The California Example
In the US, California has taken the lead on legislative initiatives to compel public companies to elevate women onto their boards – resulting in tremendous practical results despite Court decisions to the contrary, as discussed below.
Since 2013, California has tried through legislation to mandate public corporations to have more women on their boards – hard quotas.[7] In 2018, the California Legislature passed S.B. 826 mandating public companies headquartered in California to have women serving on their boards of directors with a numeric slate and penalties for violations.[8] The statute provided a detailed overview of the history and reasoning behind the requirement and a gender-binary numeric scheme as well as sizable monetary penalties for failing to meet the mandated numbers.[9] Implementing hard quotas, the statute cited hard statistics indicating that more than one quarter of companies in California had no female representation on their boards.[10]
Specifically, S.B. 826 required publicly listed companies headquartered in California to have at least one female director by December 31, 2019, and by December 31, 2021, at least two female directors if the board of directors number was five, and at least three female directors if the board was six or more.[11] Rolling fines of $100,000 then $300,000 for each subsequent non-compliance violation plus additional fines of $100,000 for not providing documentation were built in penalties.[12]
Last month, on May 13, 2022, the Los Angeles County Superior Court struck down what had become known as the ‘Women on Boards Law’.[13] The Superior Court’s decision comes soon after its overturn of A.B. 979,[14] which had required publicly traded companies based in California to have board members from “underrepresented communities,” such as individuals of different races and ethnic heritage, as well as those identifying as LGBTQ.[15]
Judge Maureen Duffy-Lewis, ruled that S.B. 826 violated the Equal Protection Clause of the California Constitution, and that the State had failed to “identify any specific, purposeful intentional and unlawful discrimination” that the law would remedy.[16] Judge Duffy-Lewis, an elected jurist serving Los Angeles County, further found that there was no compelling State interest for the law and its use of a gender-based classification, as it would not “boost California’s economy, improve opportunities for women in the workplace, or protect California taxpayers, public employees, pensions, and retirees.”[17]
Winning Despite Losing
Although the overturn of the Women on Boards Law had been anticipated ever since it was signed into law in 2018,[18] it has had a tremendous impact within California and beyond. According to the California Partners Project, the number of companies in California with no female directors at all dropped dramatically from 28 percent before the law’s passage to 1 percent in 2021 – and women held 31 percent of board seats in 2021, more than twice as many as they had held in 2018.[19]
Following Suit(s)
California’s efforts and the publicity around the S.B. 826 have also inspired the proposal of similar bills in Massachusetts, New Jersey and Hawaii, while Washington state passed a law similar to S.B. 826 in 2021.[20] Beyond legislative measures, California’s legislative efforts since 2013 have also inspired growing demands for leadership diversity in corporations overall, particularly for companies seeking to go public.[21]
California has announced that it plans to appeal the Court’s decision.
International Legislation and Trends
The California Superior Court’s decision concerning S.B. 826 counters an ongoing international movement, specifically trending in Europe, to implement Corporate Board Quota (CBQ) policies.
Hard Quotas – Scandinavia Taking the Lead
In 2003, Norway’s Parliament passed monumental legislation in this area, requiring at least 40% of each binary gender serve on public company boards by no later than January 1, 2008,[22] with the consequence of dissolution if a corporation did not comply.[23] The Norway statute therefore requires public companies to have 40% women on their boards.[24] Since that groundbreaking legislation was passed, several European countries including Belgium, Italy, France, Germany, Austria and Spain have followed suit and enacted similar laws.[25]
For example, in 2011, France’s Parliament passed legislation aiming to achieve the same goal as in Norway: a minimum of 40% of each gender on public company boards of directors.[26],[27] And in 2015, Germany’s Parliament passed legislation requiring public companies to have at least 30% of their non-executive board seats comprised of women.[28], [29]
France’s Parliament has since revisited its initial CBQ law in light of the limited advancement of women in senior roles in the intervening period. In 2011, the expectation was that the new law would have a positive ripple effect throughout the companies it impacted – a “trickle down” effect from the board room down, thereby elevating women in the lower ranks; but apparently that did not occur.[30] In 2021, the French Parliament amended the law so that public companies are required to have women comprise 30% of managerial positions in general – not just board roles – and 30% of the companies’ governing bodies.[31] These quotas are set to rise to 40% over the next decade by no later than 2030.[32]
“Soft” Policies – Encouragement versus Legislation
Australia has followed the American example, of policy over legislation. For example, in 2011, the Australian Stock Exchange implemented a policy requiring public companies to submit a form explaining their demographic composition and gender disparity, in order to encourage company executives to consider, and possibly reconsider, their hiring practices and implement a more gender-diverse workforce.[33] The actual form in question additionally includes statistics explaining the potential profitability of diversifying a company – one of many government initiatives attempting to “soft sell” the merits of gender diversity. Legislative efforts to impose hard quotas for women to serve on public company boards have yet to take root Down Under.
Conclusion
The countries in Europe that have legislated various forms of CBQs generally align with the “hard quota” argument, namely recognizing that the pace of social and economic change is slow and must be required as opposed to just encouraged. However, support for “hard” versus “soft” quotas remains up for debate – given the demonstrable practical results of the legislative initiatives and public relations in California increasing the representation of women on public company boards despite S.B. 826 being overturned by the Court. These legislative efforts have spurred tremendous change, with the trickle down effect demonstrated by public corporations choosing to elevate women onto their boards in significant numbers, thereby possibly blunting the need for such legislation.[34]
While there is not yet a clear consensus on which CBQ strategy is the most effective in creating gender equality in the workplace, currently, in the US, the message is clear: binary gender-based legislation requiring that women serve on public boards arguably runs afoul of constitutional equal protection as well as Title VII of the Civil Rights Act of 1964, and further runs counter to non-binary personal identification now accepted in many states in the US. This area – perhaps similar to the debate surrounding transgender participation in gender-binary sports – puts progressive trends at odds. Yet the “failed” legislative efforts in the US are overwhelmingly still a success in fueling more women to the penthouse of public company power. Hopefully, that trend will continue and shower (not trickle) down as inclusively as possible to increase public company leadership diversity overall.
This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Partner Helen D. “Heidi” Reavis who counsels clients in areas of corporate operations and management, employment matters and dispute resolution, and media and intellectual property law.
[1] Catherine Seierstad and Heike Mensi-Klarbach, “Gender quotas on corporate boards: similarities and differences in quota scenarios.” European Management Review, 2020. Gender Quotas on Corporate Boards: Similarities and Differences in Quota Scenarios.
[2] Id.
[3] Ruth Mateos de Cabo et al, “Do ‘soft law’ board gender quotas work? Evidence from a natural experiment.” European Management Journal, 2019. Do ‘Soft Law’ Board Gender Quotas Work? Evidence from a Natural Experiment
[4] Id.
[5] Alisha Hardiasani Gupta, “Another California board diversity law was struck down, but it already had a big impact.” The New York Times, May 19, 2022. California Law Requiring Women on Company Boards Is Struck Down – The New York Times (nytimes.com)
[6] Governor Hochul Announces New Yorkers Can Now Choose an “X” Gender Marker on NYS Driver License and ID Cards | Governor Kathy Hochul.
[7] Bill Text – SB-826 Corporations: boards of directors. (ca.gov)
[8] Id., and Alisha Hardiasani Gupta, “Another California board diversity law was struck down, but it already had a big impact.” The New York Times, May 19, 2022. California Law Requiring Women on Company Boards Is Struck Down – The New York Times (nytimes.com)
[9] Id.
[10] Id.
[11] Bill Text – SB-826 Corporations: boards of directors. (ca.gov)
[12] Id.
[13] Crest v. Padilla, Case No. 19STCV27561, at 10 (Cal. Superior Court, Los Angeles County, May 13, 2022). Crest-v.-Padilla-verdict.pdf (courthousenews.com)
[14] Crest v. Padilla, Case No. 20STCV37513 (Cal. Superior Court, Los Angeles County, April 1, 2022). Crest-v.-Padilla-LA-Superior-20STCV37513-Order-re-summary-judgment.pdf (fenwick.com)
[15] Erin Griffith, “California Law Requiring Board Diversity Is Struck Down.” The New York Times, April 3, 2022, last updated April 4, 2022. California Law Requiring Board Diversity Is Struck Down – The New York Times (nytimes.com)
[16] Crest v. Padilla, Case No. 19STCV27561, at 17 (Cal. Superior Court, Los Angeles County, May 13, 2022). Crest-v.-Padilla-verdict.pdf (courthousenews.com)
[17] Crest v. Padilla, Case No. 19STCV27561, at 10 (Cal. Superior Court, Los Angeles County, May 13, 2022). Crest-v.-Padilla-verdict.pdf (courthousenews.com)
[18] Associated Press, “California judge rules law to include women on boards of directors is unconstitutional.” NBC News, May 16, 2022. California judge rules law to include women on boards of directors is unconstitutional (nbcnews.com)
[19] Alisha Hardiasani Gupta, “Another California board diversity law was struck down, but it already had a big impact.” The New York Times, May 19, 2022. California Law Requiring Women on Company Boards Is Struck Down – The New York Times (nytimes.com)
[20] Associated Press, “California judge rules law to include women on boards of directors is unconstitutional.” NBC News, May 16, 2022. California judge rules law to include women on boards of directors is unconstitutional (nbcnews.com)
[21] Alisha Hardiasani Gupta, “Another California board diversity law was struck down, but it already had a big impact.” The New York Times, May 19, 2022. California Law Requiring Women on Company Boards Is Struck Down – The New York Times (nytimes.com)
[22] Norwegian Public Limited Liability Companies Act 1997, c. 5, § 6-11a (Nor.) Norwegian Public Limited Liability Companies Act Schjødt has … (yumpu.com)
[23] Darren Rosenblum, “Feminizing capital: a corporate imperative.” Berkeley Business Law Journal, 2009. Feminizing Capital: A Corporate Imperative (digitalcommons.pace.edu)
[24] Id.
[25] Darren Rosenblum, “Feminizing capital: a corporate imperative.” Berkeley Business Law Journal, 2009. Feminizing Capital: A Corporate Imperative (digitalcommons.pace.edu)
[26] Nicolas Boring, “France: law on economic and professional gender equality adopted.” Library of Congress, 2022. France: Law on Economic and Professional Gender Equality Adopted.
[27] LOI n° 2021-1774 du 24 décembre 2021 visant à accélérer l’égalité économique et professionnelle, Article 15. LOI n° 2021-1774 du 24 décembre 2021 visant à accélérer l’égalité économique et professionnelle (1) – Légifrance (legifrance.gouv.fr)/LAW No. 2021-1774 of December 24, 2021, to Accelerate Economic and Professional Equality, Article 15. LAW No. 2021-1774 of 24 December 2021 to accelerate economic and professional equality (1) – Légifrance (legifrance.gouv.fr)
[28] Colleen Mallick, “German Parliament approved gender quota legislation for large companies.” Jurist, March 6, 2015. German Parliament Approved Gender Quota Legislation for Large Companies (jurist.org)
[29] Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst. DIP – Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst (bundestag.de)/ Act on the Equal Participation of Women and Men in Management Positions in the Private and Public Sectors. DIP – Act for the Equal Participation of Women and Men in Management Positions in the Private and Public Sector (bundestag.de)
[30] Nicolas Boring, “France: law on economic and professional gender equality adopted.” Library of Congress, 2022. France: Law on Economic and Professional Gender Equality Adopted.
[31] Id.
[32] Id.
[33] Athena Vongalis-Macrow, “The best way to get women into boardrooms.” Harvard Business Review, 2010. The Best Way to Get Women into Boardrooms (hbr.org)
[34] Alisha Hardiasani Gupta, “Another California board diversity law was struck down, but it already had a big impact.” The New York Times, May 19, 2022. California Law Requiring Women on Company Boards Is Struck Down – The New York Times (nytimes.com)