On April 1, 2022, Judge Terry Green of the Los Angeles Superior Court struck down California’s AB 979, which required publicly held companies based in California to have at least one board director from an “underrepresented community” by the end of 2021 and to set parameters for addifional board diversity by the end of 2022. A company’s failure to diversify its board could have led to fines totaling hundreds of thousands of dollars.

California had not brought an enforcement acfion, but AB 979 was challenged under a California law that permits taxpayers to challenge state laws where taxpayer funds have been expended.

Judge Green signaled that he would overturn AB 979 at a March 14, 2022, hearing, where he characterized the law’s definifion of “underrepresented community” as a “bit arbitrary,” as certain other minority groups were not included in its definifion, and stated that AB 979’s established formula was effecfively “a quota by any other name.”

In his formal opinion, Judge Green found that the law violates the Equal Protecfion Clause of the California Consfitufion. The opinion notes that while it is “true that remediafing discriminafion may be a compelling interest,” AB 979 does not “idenfify a specific arena” where that discriminafion occurred. In Judge Green’s view, to survive consfitufional scrufiny, AB 979 needed to idenfify and apply only to specific industries or geographic regions with a history of discriminafion – not simply corporate boards throughout the enfire state.

While AB 979 was struck down, other ongoing efforts at incenfivizing board diversity remain in place. New York and Illinois require companies to disclose certain board diversity stafisfics. A Nasdaq disclosure rule, which also requires board diversity or an explanafion for the failure to diversify, is set to begin implementafion later in 2022. And just days aher this decision, Goldman Sachs announced that it helped place its 50th diverse director on the board of a client.