Company sues California over law requiring that women be on corporate boards

A shareholder for a company with an all-male board is suing California over a law that requires public companies to have women on their boards, arguing that it is unconstitutional and forces him to consider candidates based on sex.

The plaintiff, Creighton Meland, is a retired corporate attorney in Illinois and current shareholder at OSI Systems. The Delaware-incorporated, California-based company designs and manufactures specialized electronic systems for the security and health-care industries, and it has a seven-person board of directors constituted solely of men. Meland is represented pro bono by the Pacific Legal Foundation, a California-based libertarian group that brings legal challenges against the government for actions it deems invasive or unconstitutional.

California’s law mandates that by the end of 2019, public companies that have their executive base in California must have at least one woman on their boards. By 2021, those numbers must increase for companies depending on the size of their boards. The legislation was introduced in early 2018, months after the #MeToo movement sparked a national debate on the lack of equality, protections and representation for women in the workplace. It was signed by then-Gov. Jerry Brown, a Democrat, that September.

California is the first U.S. state to pass such legislation, according to the Barrons financial publication.

Under California’s law, OSI would be required to have at least one woman on its board by the end of 2019, and at least three by the end of 2021. OSI did not immediately respond to emails and phone calls requesting comment about the lawsuit.

But the lawsuit filed Wednesday in the U.S. District Court for the Eastern District of California says that California’s mandate is unconstitutional and in violation of the Equal Protection Clause because it discriminates on the basis of sex, and that requiring Meland to consider sex when voting to add members to OSI’s board forces him to discriminate.

A representative for California Secretary of State Alex Padilla, who is named as a defendant, declined to comment because the office had not received a copy of the lawsuit.

Women and minorities are disproportionately represented in American boardrooms, though they have been making gains in recent years. A 2018 report by Deloitte and the Alliance for Board Diversity found that women made up 25% of board seats at Fortune 100 companies, while minority women made up just shy of 6%, the study found. Among Fortune 500 companies, women held about 22% of board seats and minority women 4%. The majority of board seats for Fortune 100 and 500 companies belonged to men at that point.

While minority and female representation had increased among Fortune 100 and 500 companies, “advancement is still slow,” the report states.

California is “just trying something different . . . to create a new mechanism to see greater diversity on these boards,” said Linda Akutagawa, chairwoman of the Alliance for Board Diversity as well as president and CEO of Leadership Education for Asian Pacifics. “There are highly qualified women and minorities available to take places on these corporate boards, that add great value. They have deep experience, I think if anything [California’s law] is enabling companies to widen their aperture to see the talent that exists out there.”

But the individuals behind the new lawsuit say they believe that these quotas will harm women more than help them. The complaint says “the law is not only deeply patronizing to women, it is also plainly unconstitutional.”

Despite the lack of female board members, Meland “would argue that there’s no evidence of discrimination” on OSI’s board, said Anastasia Boden, who is representing him through the Pacific Legal Foundation.

Boden said the intent of the lawsuit is ultimately to strike down California’s law, which she said constituted “discrimination aimed at helping women.” She argued that the law could have the unintended consequence of “creating this image that women can’t make it to the boardroom without government help, and that’s not true. . . . Under quotas, people may question whether women are being hired based on their merit, or under a quota.”

Boden said companies were already working to increase diversity on their boards thanks to pressure from investors and the public, and should be allowed to continue.

The lawsuit’s claims echo some of the arguments made by the conservative-activist group Judicial Watch, which sued the state in August on behalf of California taxpayers and called the law “brazenly unconstitutional,” the Mercury News reported.

State Sen. Hannah Beth-Jackson, a Democrat who sponsored the legislation, defended the law’s constitutionality Thursday.

“I certainly respect the constitutional right of anyone to challenge the law in our courts,” she said in a statement to The Washington Post. “However, I strongly believe that this measure meets constitutional requirements and will be held up in court. Significant research has shown the importance of adding women to boards to improve profitability and add to the economic well-being of the state, as well the interest of the state to advance gender equality.”

Despite a gender imbalance among the top levels of corporate America, businesses and lawmakers are still debating the best way to address the issue.

As of July 2019, each company in the S&P 500 has at least one woman on its board, according to an annual corporate-directors survey by PricewaterhouseCoopers. Women held 24% of these board seats in 2018, an increase from 19% of seats in 2013. Although PwC found that corporate directors generally supported more diversity and believed it benefited their companies, the findings showed opposition to efforts to increase diversity through legislation. The survey found that 83% of directors don’t believe laws such as California’s will increase diversity on boards. The study found that 54% of female directors agree with that sentiment.

Some European countries such as Norway, Belgium, France and Italy have implemented quotas on the number of women on corporate boards, and it’s increased women’s representation.

Serena Fong, vice president at Catalyst, an organization that provides research and tools to help women advance in the workplace, said that in these countries, “we have seen an increase in the representations of women on corporate boards.”

“Is it the only way to get women on to boards? No,” she said, noting that regulatory and voluntary methods could be used in stead of legislative quotas. But “when it comes to down to the sheer numbers, yes they are effective.”