Active: Federal lawsuit challenges California’s race-based corporate board quota

First, it was the 2018 “woman quota” for corporate boardrooms, a discriminatory California law dictating minimum female membership on the boards of the state’s publicly traded companies.

Then, in September 2020, California’s governor signed AB 979, a near-identical quota that mandates that a minimum number of board members come from “underrepresented communities.”

“Underrepresented” includes racial minorities and LGBTQ individuals—specifically, someone who “self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

By the end of 2021, every company subject to AB 979 must have a minimum of one director from an underrepresented community on its board. By the end of 2022, any company with four or fewer directors must have one underrepresented minority board member, any company with between four and nine directors must have two underrepresented board members, and any company with nine or more directors must have three underrepresented board members.

As with the woman quota, companies failing to comply face fines of $100,000 for the first offense and $300,000 for any subsequent offense—for each spot not held by an underrepresented minority.

In practice, this quota will force shareholders to discriminate when voting on board members. Instead of merely voting for the best candidates, shareholders must consider their race or sexual orientation as well.

Shareholders of affected companies include the National Center for Public Policy Research (NCPPR). The nonprofit organization advocates as a shareholder for free-market solutions to social problems.

To that end, NCPPR owns stock in many publicly traded companies and seeks to vote for board members based on their individual talents, capacities, and other characteristics, free of government-compelled discrimination.

Basing quotas on immutable characteristics such as race, however, subverts normal corporate governance and puts the government’s thumb on the scales of private boardroom operations.

It also violates the Constitution’s guarantee of equality before the law.

The Equal Protection Clause of the Fourteenth Amendment was written to ensure that no one will be forced to make choices based on another person’s race, sex, or immutable characteristics. Quotas flip that promise on its head; instead, they require discrimination in order to reach the government’s desired racial balance.

PLF’s win in the Ninth Circuit in the woman quota case validated the principle that shareholders can sue when their choices are restricted by unconstitutional government mandates.

Because the State of California cannot mandate race-based discrimination, the NCPPR is fighting back. With free representation by PLF, the organization is challenging the race quota in federal court.

What’s At Stake?

  • Treating people according to immutable characteristics like race, sex, and sexual orientation violates the very notion of equality before the law. People should be treated as individuals, not as members of a group they’re born into.
  • The government’s attempt to dictate the number of minorities on corporate boards is discriminatory and violates the Constitution’s equal protection guarantee.
  • A government that can meddle with the composition of corporate boards can enlist shareholders to run companies according to the state’s preferred social policies.

Case Timeline

September 06, 2022
November 22, 2021
United States District Court Eastern District of California