Mandating Diversity on Company Boards with Joe Grundfest and Gail Harris

Equality for women in the U.S. is still an uphill battle, the wage and leadership gap a challenge 100 years after passage of the 19th Amendment. But can gender equality be regulated with law and quotas? California is trying in one narrow area—the boards of public companies—with a new law mandating gender diversity on those boards. Joe Grundfest, a former SEC commissioner and expert on corporate governance, and Gail Harris, who serves as lead director of investment banking advisory firm Evercore Inc., discuss the law, possible challenges to it, and why it matters in this episode of Stanford Legal.

This episode originally aired on SiriusXM on February 1, 2020.

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Diversity of Corporate Boards with Joe Grundfest and Gail Harris 2

Mandating Diversity on Company Boards

On this episode of Stanford Legal, Pam Karlan and Joe Bankman are joined by Stanford Law graduate and lead director of Evercore Gail Harris and Stanford Law professor Joe Grundfest to discuss SB-826, a recent law passed in California requiring boards of directors headquartered and incorporated in the state to have at least one woman on its board. The legislation, though promoting a positive effort, is likely to be met with controversy and legal troubles.Harris mentioned the benefits of having more women on boards, saying “Woman really, I don’t want to say generally think differently, but I find woman are very much team players, are very supportive, but also question. On the boards I’m on, they will raise a lot of the tough questions, and they’re not afraid to challenge the CEO.” The advantages of having women on boards are clear, but the legislation has some serious issues in its legal foundation. Grundfest proffered that SB-286 is unconstitutional for two reasons, as it violates the Internal Affairs Doctrine as well as the Equal Protection Clause of the California and US Constitutions.

In discussing the Equal Protection Clause, Karlan, an expert on constitutional law, mentioned a recent U.S. Supreme Court case regarding admissions quotas at U.C. Davis medical school, noting the Court held that “quotas are an especially constitutionally suspect way of regulating benefits and burdens.” In this light, it seems that the law may face troubles down the line; interestingly, data shows that companies are more than willing to comply with the legislation regardless of its constitutionality. The number of California corporations all male boards had decreased by 82% since the enactment of the bill, and the number is expected to keep dropping.

Should the law be struck down by the courts, the group agrees that it will likely not change much about the behavior of boards. “If it’s declared unconstitutional, they’re not kicking the woman off,” says Harris. “And also, remember, the larger companies, the ones that are really in the public eye, they have much more incentive to get woman on the board, because they are in the public eye.”

—Max Smith