Mandating Board Diversity

Abstract

California’s Assembly Bill 979 (AB-979) requires companies that are based in California to have a specified minimum number of directors from underrepresented communities. A “director from an underrepresented community” is defined as an individual 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. AB-979 received much attention for being the first law to mandate greater diversity on corporate boards in terms of race and sexual orientation. Senate Bill 826 (SB-826), which was introduced two years prior, was the first U.S. legislative effort to mandate greater gender diversity on corporate boards. AB-979 and SB-826 have received both intense praise and vehement criticism. The debate over the California board diversity bills raises fundamental questions about the proper role of the state in using its power to regulate corporations to advance public values. In this Article, I summarize and respond to the various legal challenges that have been raised against California’s board diversity bills and argue that the precedent-setting efforts of the California legislature are consistent with the original design of corporate law in the United States, which is built on a model of federalism and state competition.