Back in the Sixties, segregationists opposed to the impending Civil Rights Act of 1964 were fond of saying “you can’t legislate morality.” By which they meant that morality is a bottom-up enterprise, an ultimately spiritual, individualistic goal, and not one that can be imposed from the top down. All of which was then and is now palpably false, as the entire body of criminal and tort law, not to mention the canon law of a dozen ancient religions, are nothing but a perpetual legislation of morality. And while one can argue that law succeeds only sporadically in making men and women moral, that doesn’t stop prophets, clergymen, and legislators from trying.
The old phrase came to mind recently, when I had occasion to read a law enacted late last year by the California state legislature titled Assembly Bill 979, which takes the concept of legislating morality from the top down into heretofore uncharted territory. In summary, the act requires that publicly-traded public corporations headquartered in California (regardless of where they operate or are incorporated) must alter the composition of their boards of directors to include persons from certain “underrepresented” factions. (Somewhat similar though much less stringent rules have been proposed by Nasdaq for companies to be listed on its exchange, but these lack enforcement remedies and are subject to further review and comment before they may become applicable.)
Specifically, AB 979 requires that by the end of 2021, any such corporation must have at least one director 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.” Further, by the end of 2022, boards composed of five to eight members must have at least two board members who self-identify as belonging to one or more or these categories, and those composed of nine or more must have at least three underrepresenteds (my neologism, not the statute’s).
These provisions build on a mandate of simple gender diversity enacted in 2018, which required that boards of this kind of company have at least one female member; AB 979 ups the ante to require that by the end of 2021 boards of six or more must have at least three female members, that those of five must have at least two females, and you need to have a board of four or fewer to get away with just one female director. Yes, you apparently can score a twofer if you can recruit, say, a female Alaska Native onto your board. And yes, you can satisfy the requirements by expanding the board rather than by swapping out directors (though a bigger board may trigger the higher numbers of prescribed categories of board members under the statute).
Corporate boards of directors have been and continue to be one of the last bastions of the old boys’ club, where like-minded guys and a few token gals could get together a few times a year, usually in some lively urban center, rubber stamp a few uncontroversial business decisions, listen to some upbeat executive presentations, go out to an expensive dinner (or two or three), stay in an expensive hotel, and fly home first class, all on the company dole, and moreover get paid tens or sometimes hundreds of thousands of dollars a year to serve (or be served) in this capacity. A corporate board membership is one of the plummiest of the plum rewards for success or notoriety in a given field (often unrelated to the business of the company the board serves), and has for generations been a way for successful men (primarily) to lavishly reward their friends and acquaintances with someone else’s money. Not surprisingly, the result has been boards that are overwhelmingly white, male, straight, and getting wealthier by the minute.
So the instinct behind AB 979 is understandable and laudable: bust up the corporate boys’ club, force it to include people who would never have been invited onto a board in the normal course of things because of their race or ethnicity or gender or sexual preference (not necessarily because anybody hates those types, but just because the incumbent execs and board members don’t know any), and hence diversify the points of view that sometimes (though rarely) influence major decisions at our most powerful businesses. In short, legislate this aspect of corporate morality. It’s another undulation in the wave of social justice movements currently sweeping the land, of a depth and breadth not seen since the 1960s. And in general that’s a good thing.
It’s in the particulars that legislation like this gets problematic. First, there’s the relative ease of avoiding it. It applies only to corporations that are publicly traded, and whose “principal executive offices” are in California. What this means in this context isn’t entirely clear, but the Securities and Exchange Commission suggests that it means where your senior executives (whoever they are) go to work (a concept that itself has been upended by the Covid pandemic). So a company that takes affront at being told what sort of person to have on its board can pursue the expedient of moving its high-level executive offices to another state, as many companies are already doing because of California’s astronomical income tax rates.
Second, the law may be unconstitutional. There’s a long-standing doctrine under the Commerce and Full Faith and Credit clauses of the federal Constitution that holds that a corporation’s internal governance should be regulated by the state in which it’s incorporated, which means Delaware for a majority of corporations, including those headquartered and doing business in California. Delaware rather jealously guards its role as first-choice place of incorporation, and its right to regulate its corporate citizens. One can expect a raft of litigation on this question, in addition to challenges based on the Equal Protection clause, in a vein similar to the challenges to affirmative action in academic admissions currently pending before the Supreme Court.
Enforcement of AB 979 is likely to be problematic even if it survives court challenge. The California Secretary of State, whose office nominally supervises corporate activity within the state, will apparently have to require new filings that would reveal compliance or non-compliance with the statute. And penalties for non-compliance, even when found, are relatively light: $100,000 for the first violation and $300,000 for each additional violation (with each incorrectly filled board seat counting as a violation) — less than many public corporations’ annual legal bills.
Then there are the queasy definitional issues. “Female” is used in the statute on a stand-alone basis, as a genetic absolute, while qualification for inclusion in the various underrepresented racial/ethnic categories seems to turn on how one “self-identifies.” Presumably I couldn’t self-identify as a Native Hawaiian no matter how much I might like to (though it’s not clear what other than shame would stop me), but people self-identify as female all the time. Where do chromosomes leave off and one’s self-identification begin, exactly? How far back must one’s family history be traceable, or how long ago may one’s ancestors have arrived on the mainland, to still qualify as, say, Pacific Islander? What feeling person — including your average white guy — isn’t at least a little bit bisexual, or might at any moment declare himself to be? And what bureaucrat is going to police all these deeply personal self-characterizations?
It would have been interesting to be a fly on the wall during the drafting sessions for the statute, and learn how this particular list of underrepresented groups was arrived at. Why, for instance, no Middle Easterners, or persons with disabilities? What if someone is of mixed racial or ethnic heritage? Once the criterion of underrepresentation is front and center, there’s no principled reason to confine it to an arbitrary list of races or ethnicities.
The preamble to the statute recites a number of statistics in support of the inarguable fact that corporate boards are predominantly white, male, and straight. That this is inherently wrong goes without the need for recitation, as does the premise that the named groups’ becoming represented on boards, even if by a handful of their cohort, is inherently good for those groups and for society at large. But that benefit can be exaggerated. A board of directors isn’t a mini legislature that can change corporate culture by fiat, and it’s rare that the typical board is presented with a decision that would have any special bearing on the quality of life of the selected groups now required to be represented. Advertising comes to mind as a corporate activity that could influence how underrepresented groups are perceived (such as the current pervasive fad in advertising for depicting every happy family as multiracial, and fashion magazines’ sudden interest in Black models), but advertising campaigns rarely rise to the level of board decision-making. Ditto with corporate hiring practices. The recent Theranos and WeWork debacles highlighted how outrageous executive practices can proceed unchecked under the noses of even the most august and experienced corporate board members.
Certainly the few individuals newly included on boards merely to satisfy the statute will benefit monetarily and career-wise from its mandate, in a kind of miniature social welfare program. But unless one views a board seat as necessarily improving the lot of anyone other than the board member who holds it, it’s hard to see how the statute materially advances its presumed goal of greater inclusion and diversity in the real world, though it may well accelerate corporate flight from the State of California, and thus reduce local job opportunities across the identity spectrum.
Conservatives will dismiss the new law as nothing more than a uniquely Californian exercise in progressive political theater, more self-congratulatory gesture than substantive change, and one that would be dead on arrival in most state legislatures. But the deeper question for liberals and progressives alike is whether this sort of effort to advance social justice through statutory micromanagement is the correct agenda, whether it reduces the goals of equity and diversity to symbolic virtue-signaling and sets them up for legal and popular opposition by imposing ever more finely-grained — and ultimately arbitrary — ethnic, racial, and sex preference quotas to achieve nominal representation in contexts where it matters less, while shirking harder tasks, like reigning in the outsized power of California-based tech companies, no matter what their boards look like.
In the social utopia that liberals once dreamed of, we were to become, at least under the law, deracinated and de-ethnicized and ungendered, viewed as radically equal human beings. It might be a duller place in that way, but it was sure to be more just, because the arbitrary racial, ethnic, and gender categorization that enables discrimination and exclusion would have become unsustainable — indeed, illegal. It seems at the very least ironic that the current progressive effort to legislate morality has taken a form that enshrines those very categories in the public consciousness and in statutory law.