featured graphic for the Free Enterprise Project of the National Center for Public Policy Research

Shareholder activists sue California over radical Board of Director rules

Challenging a California law requiring companies to adhere to minimum quotas of board members based on race or sexual orientation, shareholder activists from the National Center for Public Policy Research (NCPPR) joined with the Pacific Legal Foundation (PLF) in a federal lawsuit aimed at striking that law down as unconstitutional.

“All racism is racism. All discrimination is discrimination. Each American should be judged according to his unique merits and the content of his character,” said Scott Shepard, director of the National Center’s Free Enterprise Project (FEP). “Doing anything else is unconstitutional, immoral and divisive. Californians deserve better than legally-mandated New Racism, especially if it is promoted under the Orwellian guise of ‘antiracism.'”

The lawsuit, National Center for Public Policy Research v. Weber, was filed in the U.S. District Court for the Eastern District of California on November 22. It seeks to overturn a state law passed in 2020 (AB 979) that amended California’s Corporations Code. The law requires that corporate boards of publicly held companies based in the state have a minimum number of members from “underrepresented communities,” defined as people of certain favored races or sexual orientations. It follows legislation passed in 2018 (SB 826) similarly requiring boards to have a minimum number of women.

“California’s quota doesn’t remedy discrimination, it perpetuates it,” said Anastasia Boden, senior attorney at Pacific Legal Foundation. “This law forces shareholders to cast votes based on immutable characteristics that people were born into and cannot change. The government should treat people as individuals, not based on immutable characteristics.”

In 2019, PLF filed a lawsuit challenging the amendment created by SB 826, and won at the U.S. Court of Appeals for the Ninth Circuit. It was ruled that shareholders have standing to challenge these quotas, and the case was sent back to the same U.S. District Court for the Eastern District of California.

“California’s political class has proven inept at running the state. Now they are heaping their unconstitutional ineptitude on the business community,” added National Center Executive Vice President Justin Danhof. “It may seem like a novel concept in 2021, but board members ought to be appointed for business purposes to help companies thrive. Selecting boards based on what someone looks like and who they prefer as sexual partners is not in the best interest of the shareholders of any company.”

In a similar ongoing case, FEP is seeking to strike down a quota rule recently implemented by the Nasdaq corporation and approved by the U.S. Securities and Exchange Commission (SEC). Nasdaq now requires companies listed on its stock exchange to either establish board quotas on the basis of race, sex and sexual orientation or explain why they have not done so. In the suit, FEP – represented by the New Civil Liberties Alliance – argues that the SEC lacks authority to approve the rule, and that Nasdaq lacks the authority to promulgate it. A companion suit argues the rule is illegal and unconstitutional.

To schedule an interview with the National Center on this or other issues, contact Amy Jo Clark at (317) 504-0133 or Judy Kent at (703) 477-7476.

Launched in 2007, the National Center’s Free Enterprise Project focuses on shareholder activism and the confluence of big government and big business. Over the past four years alone, FEP representatives have participated in over 100 shareholder meetings – advancing free-market ideals about health care, energy, taxes, subsidies, regulations, religious freedom, food policies, media bias, gun rights, workers’ rights and other important public policy issues. As the leading voice for conservative-minded investors, it annually files more than 90 percent of all right-of-center shareholder resolutions. Dozens of liberal organizations, however, annually file more than 95 percent of all policy-oriented shareholder resolutions and continue to exert undue influence over corporate America.

FEP activity has been covered by media outlets including the New York Times, Washington Post, USA Today, Variety, the Associated Press, Bloomberg, Drudge Report, Business Insider, National Public Radio and SiriusXM. FEP’s work is prominently featured in Stephen Soukup’s new book The Dictatorship of Woke Capital: How Political Correctness Captured Big Business (Encounter Books) and Kimberley Strassel’s 2016 book The Intimidation Game: How the Left is Silencing Free Speech (Hachette Book Group).

The National Center for Public Policy Research, founded in 1982, is a non-partisan, free-market, independent conservative think-tank. Ninety-four percent of its support comes from individuals, less than four percent from foundations and less than two percent from corporations. It receives over 350,000 individual contributions a year from over 60,000 active recent contributors. Sign up for email updates here.

The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

This article was released by the National Center for Public Policy Research.