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Will SB 826 Survive?

Back Article Mar 7, 2019 By Steven Yoder

Last August’s law, SB 826, was in part the product of frustration. In 2013, one of its sponsors, Sen. Hannah-Beth Jackson, authored a resolution that urged all publicly held California corporations to ensure one-fifth of their board directors were women by the end of 2016. While adopted by both legislative chambers, the resolution carried no consequences. When the deadline rolled around, fewer than 20 percent of companies had actually hit the target, according to a Senate analysis.

Critics like Joseph Grundfest, a corporate governance expert and law professor at Stanford’s Rock Center for Corporate Governance, argue that SB 826 is on shaky legal ground. Grundfest predicted in a September 2018 paper that the law would face legal obstacles because of a 1982 Supreme Court ruling that a company is governed by the laws of the state in which it’s incorporated, not the one where it’s headquartered. If successfully challenged on those grounds, the law would apply to only the 72 publicly traded companies both headquartered and incorporated here in California, Grundfest wrote (fewer than 10 percent of the 761 that are headquartered here, according to the Senate analysis). Or it might be entirely struck down on equal protection grounds under the Constitution’s 14th Amendment, he noted.

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Ann Ravel, a corporate attorney, takes issue with Grundfest’s conclusion. A good legal defense would argue the law is attempting to create a uniform plan of regulation that’s grounded in an argument of equal protection for women under the 14th Amendment, she says. A company couldn’t exempt itself from California’s sexual harassment laws merely because the firm’s state of incorporation doesn’t have such laws, she says. She also doubts the law will be challenged at all. “More and more corporate entities are tending to bow to public pressure on this issue. Organizations that represent corporations are going to be wary of litigating this.”

In Europe, quotas are in place in at least a dozen countries. Norway, for example, has required corporate boards to be 40 percent female since 2004.    

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