SBWL Joins California Women Lawyer’s Amicus Brief In Support of SB 826 Requiring Women on Corporate Boards

By Natalie Mutz

On April 4, 2022, the California Women Lawyers (CWL), an affiliate organization of the Santa Barbara Women Lawyers (SBWL), filed an amicus brief in the United States Court of Appeals for the Ninth Circuit, in the matter of Meland v. Weber, Case No. 22-15149.

SBWL was among the organizations that signed onto CWL’s brief, which was written by San Diego appellate specialist Johanna Schiavoni. The punchy, data-driven message of the amicus brief is that discriminatory structural barriers continue to lead corporations to exclude women from membership on their boards, governmental action is needed to remove those barriers and allow women a fair chance to reach positions of business leadership, and there are many experienced and well-qualified women who are willing and able to serve on public company boards, if only given the chance.

Meland v. Weber presents a constitutional challenge to California Senate Bill 826 (SB 826), enacted in 2018, which requires publicly traded companies headquartered in California to have a minimum number of women on their boards of directors, in proportion to the total number of directors.

The plaintiff in the case, Creighton Meland, Jr., filed suit in November 2019, alleging that SB 826 violates his equal protection guarantee in the Fourteenth Amendment to the U.S. Constitution because, as a shareholder of a publicly traded company headquartered in California, he was being compelled to discriminate on the basis of sex when exercising his shareholder voting rights.

Meland’s claim was initially dismissed by District Court Judge John A. Mendez of the Southern District of California, who found that Meland had no standing to sue since he suffered no injury-in-fact. The law did not require him to vote for a woman, and he did not allege a “direct injury separate from any injury to [the corporation].”

On appeal, the Ninth Circuit reversed the District Court’s decision, holding that Meland was being compelled by law to discriminate on the basis of sex, and this constituted an injury-in-fact. Accordingly, Meland had the requisite standing to pursue his case.

Back in the District Court, Judge Mendez denied Meland’s petition for preliminary injunction against SB 826. Meland has appealed that order to the Ninth Circuit, and it is now pending review.

Enter CWL. The organization filed an earlier amicus brief, which was quoted in the District Court’s opinion denying the preliminary injunction. When Meland appealed, the brief was recast and addressed to the Ninth Circuit in support of upholding the District Court’s decision.

CWL’s amicus brief [“Brief”] pummels the court with facts and figures illustrating the ways in which board recruitment and appointment for publicly traded companies excludes women. “The barriers are structural: the board recruitment process is secretive, and the criteria are unstated or highly subjective.” [Brief, at p. 5.] Board member recruitment is not like a job search for an executive position, where different qualified candidates are compared against each other. “A corporate board appointment is by invitation only. There is no public notice or application process. Board positions are often not publicized. Even if open board positions are made public, there often are no stated criteria for the position and the vetting is conducted in secret.” [Id.]

The data shows that when a board position opens, “board members rely on their existing networks and friends to fill the position” and “these networks and friends are overwhelmingly comprised only of other men.” [Brief, pp. 6-7.] “Quantitative studies analyzing archival data show that male networks are very influential in board selection and . . . represent a huge barrier for women. . . . reinforcing inequalities in the careers of men and women.” [Brief, p. 7, internal quotations omitted.] “When those who sit on boards – mostly white men – . . . comb their networks for people they can put forward (which is how 87% of board seats are filled), they find few women executives in their own circles.” [Brief, p. 8, internal quotations omitted.]

While most people accept and agree that diversity is healthy, the reality is that “board members have an incentive and self-interest to preserve social comfort levels and board cohesion.” [Brief, p. 10, internal quotations omitted.] “A survey of more than 500 hiring managers found 74 percent reported their most recent hire had a personality similar to their own.” [Id.]

Additionally, “women face stereotypes and bias based on perceptions that they lack the qualities of effective business leaders.” [Id., internal quotations omitted.] This leads women to be negatively compared to their identical male counterparts, regardless of qualifications, leading in turn to the barriers that prevent women from attaining leadership roles such as positions on corporate boards.

While Meland claims that SB 826 in fact harms women by assuming women cannot attain corporate board positions on their own, the law does just the opposite. “By promoting diversity on corporate boards, SB 826 breaks down stereotyping and advances meritocracy by encouraging companies to seek directors based on merit rather than searching within their own narrow, existing male-dominated business and social networks.” [Brief, p. 12-13.]

Because board vacancies are so infrequent, seats rarely open for new candidates, contributing further to the exclusion of women. Vacancies are disincentivized because of the personal and financial benefits that corporate directors receive. Among these are massive networking opportunities, which “exponentially increase an individual’s professional reach in ways that can pay off dramatically in the future.” [Brief, p. 15.] Another benefit is the money. While board positions are typically part-time roles, the annual compensation can run to $300,000 or more. [Brief, p. 16.] Because of these personal and financial incentives, coupled with the absence of term limits or review procedures that could lead to involuntary removal, turnover on boards is extremely slow, leaving few opportunities for women to get a seat.

CWL highlights the overwhelming evidence that there is a “deep pool of qualified female candidates” available to serve on corporate boards, rebutting Meland’s contention that underrepresentation on public company boards was due to the lack of women in the relevant labor pool, rather than from discrimination. [Brief, p. 22, citing AOB 22, Dist. Ct. Doc. 32-1 at 9.] Meland cited no support for his claim. But SB 826 did not appear out of thin air. The bill, authored by Senator Hannah Beth Jackson, was the result of legislative hearings where copious evidence was introduced showing that thousands of women were qualified to serve on corporate boards, including executives and otherwise experienced women. The bill drew support from hundreds of individuals, organizations, and companies across a broad range of industries, who called further attention to the legions of talented, board-ready female candidates.

“The evidence is consistent with the fact of widespread female participation in business and the professions. The number of females in graduate schools surpassed the number of males in 1984; in 2008 women accounted for 59 percent of graduate school enrollment. Women have earned more master’s decrees than men since 1987, and more doctorate decrees than men since 2006. Women represent 51 percent of the population, 50 percent of the labor force, and earn more than 50 percent of bachelors and masters and doctoral degrees.  The data show boards had no difficulty finding qualified women to serve, once they began to look beyond their ponds.” [Brief, p. 23, internal quotations omitted.]

Why is government action needed? Unlike other areas, there is no avenue to seek legal redress for discrimination in selection for corporate directorships. Federal law protects discrimination against employees, but not directors. California law is similar. Published case law does not contain any examples of employment law being extended to cover a prospective corporate director seeking an independent seat on a corporate board. [See, Brief, p. 21.] Even if a legal basis existed to challenge a board appointment, women know that publicly complaining will likely lead to their exclusion from consideration in other contexts. [Id.]

Finally, CWL points out that SB 826 is working, where measures taken before the law were ineffective. Until SB 826’s passage, little change occurred despite numerous efforts at both a state and national level. Before SB 826 was enacted, men held 84.5% of corporate board seats in publicly traded California companies, while 29% of publicly traded companies in the state had no female corporate board members at all. [Brief, p. 27.] These figures had been stagnant before a surge in female corporate board membership when SB 826 was passed in September 2018, with women overtaking men in new appointments since the first quarter of 2019. [Brief, pp. 28-29.] As of March 1, 2021, only 1.3% of California publicly traded corporate boards have all-male directors. As of September 30, 2021, women held over 29% of the public company board seats in California, up from 15.5% in 2018. [Brief, p. 31.]

Despite this progress, underrepresentation persists. Twenty-nine percent is far from equal representation. “Thus,” CWL writes, “there remains an ongoing need for the legislation to combat the longstanding, structural barriers to women’s service on corporate boards.” [Brief, p. 32.]

While the amicus brief does not delve into the legal analysis of the constitutionality of the law, the data is extremely compelling. The district court was correct that enjoining a law that is not clearly unconstitutional “at this early stage may deny highly qualified women who are eager and seeking to join corporate boards the opportunities provided by SB 826,” and that the law is necessary to prevent continuing discrimination against women, and it is clearly working. [Brief, pp. 34-35.]

SBWL’s Advocacy Committee reviewed recommended that the board add SBWL to the list of supporters of the amicus brief, finding the cause to be very much in line with SBWL’s mission of promoting gender equality. The board voted unanimously to sign on. The hope is that the Ninth Circuit will take note that women still face discriminatory structural barriers to corporate boardrooms, that government action is needed to remove those barriers, and that well-qualified, experienced women are willing and able to fill corporate board positions.

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On a related note, on April 1, 2022, a Los Angeles Superior Court judge granted summary judgment in favor of plaintiffs challenging the constitutionality of a similar statute, AB 979, which requires California public companies to include a minimum number of individuals from underrepresented communities on their boards of directors. (Crest v. Padilla, Case No. 20STCV37513.) The judge held that the secretary of state submitted insufficient evidence that the law would remediate past discrimination against these groups and concluded that the law was not permissible because it was not the least restrictive means to achieve the goal of diversity.

CWL’s amicus brief did not address AB 979, but it noted the compounded effects of racial and other forms of discrimination faced by women of color, those from the LGBTQIA+ community, and women from other underrepresented communities, and the crucial need to also create solutions to address and remedy these additional barriers to participation on corporate boards.

The constitutionality of SB 826 will be assessed under a different level of scrutiny from AB 979. Because SB 826 involves gender rather than race, the law is subject to intermediate scrutiny rather than strict scrutiny. In addition, the district court judge in Meland v. Weber expressly found that the state had tried other means of addressing the gender disparity on corporate boards prior to passage of SB 826 and that those means had failed. This differentiates Meland from Crest v. Padilla, where the trial judge held, “There are other obvious and neutral measures suggested by the legislators themselves, their experts, their witnesses, and even the statements of their lawyers. These measures were not attempted.”

The decision in Padilla is ripe for appeal to the California Court of Appeal. SBWL’s Advocacy Committee will be monitoring this.