June 30, 2022

Volume XII, Number 181

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California Board Diversity Statute Unconstitutional

On April 1, 2022, the Los Angeles County Superior Court granted summary judgment in favor of the plaintiff in Crest v. Padilla, a case challenging the constitutionality of Section 301.4 of the California Corporations Code, a statute requiring certain publicly traded companies headquartered in California to include members from underrepresented communities on their boards of directors. The statute also authorized the imposition of fines for violations and required companies to file board diversity information annually with the California Secretary of State. However, the State thus far has not adopted regulations to actually implement these fines.

The Court found that the statute violated the equal protection clause in California’s constitution as it treated “similarly situated individuals – qualified potential board members – differently” because of racial, sexual orientation, and gender identity classifications without proving a compelling government interest. The California Secretary of State may appeal the ruling.

Regardless of the future of this particular statute, pressure to diversify corporate boards is expected to continue to grow. Institutional investors, shareholders and other stakeholders have expressed concerns in recent years about a stark lack of diversity on corporate boards and the need for clear disclosure regarding board diversity. So, regardless of the outcome of any appeal in this case, publicly traded companies should continue their efforts to diversify their boards. In August 2021, the U.S. Securities and Exchange Commission approved Nasdaq rules requiring companies to either meet certain minimum targets for the gender and ethnic makeup of their boards or to explain publicly why they do not. Also, beginning in August 2022, Nasdaq-traded companies will be required to have either disclosed self-identified board diversity characteristics in a board diversity matrix in their proxy statement or on their websites.[1]

ENDNOTES

[1] See Preparation for 2021 Fiscal Year-End SEC Filings and 2022 Annual Shareholder Meetings.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XII, Number 102
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About this Author

Kevin M. Yao Associate Mintz
Associate

Kevin focuses his practice on corporate matters such as capital-raising transactions, mergers and acquisitions, corporate governance strategies, and SEC compliance issues. He counsels public and private companies in a variety of industries, including life sciences and technology.

Kevin worked at Mintz as a Summer Associate in 2019 and as a Corporate Intern in 2018. He also interned with the in-house legal team at FabFitFun, an LA-based subscription box startup that sells lifestyle products.

In law school, Kevin earned...

858-314-1575
Melanie Levy IPO Attorney Mintz
Associate

Melanie's practice focuses on corporate and securities law matters. Before joining Mintz Levin, Melanie worked as a health care and science division legal associate for Thomson Reuters. There, she drafted and negotiated health information technology license and subscription agreements, vendor agreements, federal and state government contracts, health information data use agreements, and business associate agreements among other documents. She assisted in-house counsel on various aspects of health care law including health care reform, HIPAA, data privacy, and state regulatory...

858-314-1873
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