LOS ANGELES – A California official defending the state’s landmark law that mandates women be placed on corporate boards testified Thursday that it was essentially toothless and there are no plans to penalize companies for not complying.
Under the 2018 law, publicly held corporations based in California have to appoint up to three women to their boards of directors by January and could face hefty fines for not doing so or for failing to file the required paperwork.
But Betsy Bogart, a division chief testifying in Los Angeles Superior Court on behalf of her boss, the secretary of state, said the law is not enforced.
“It’s required but there’s no penalty, so it’s essentially voluntary,” Bogart said.
The disclosure came on the second day of trial in a lawsuit by the conservative legal group Judicial Watch that claims it's illegal to use taxpayer funds to enforce a law that violates the equal protection clause of the California Constitution by mandating a gender-based quota.
During opening statements Wednesday in Los Angeles Superior Court, a deputy attorney general said the office would not levy fines for not complying with SB826, the Women on Boards law.
“The secretary of state has no plans to draft regulations or implement fines in furtherance of the act,” Deputy Attorney General Ashante Norton said.
Norton defended the law as constitutional and necessary to reverse a culture of discrimination that favors men. She said no additional funding was spent implementing it and the law served a compelling government interest that improved companies bottom lines and the state's economy.
The law required publicly held companies headquartered in California to have one member who identifies as a woman on their boards of directors by the end of 2019. By January, boards with five directors must have two women and boards with six or more members must have three women.
The law called for penalties ranging from $100,000 fines for failing to report board compositions to the California secretary of state’s office. Companies that do not include the required number of female board members can be fined $100,000 for first violations and $300,000 for subsequent violations.
Bogart said there were no penalties if a company lied about the makeup of its board and there was no follow up if they failed to file the required report.
Fewer than half the nearly 650 applicable corporations in the state reported last year that they had complied. More than half didn’t file the required disclosure statement, according to the most recent report.
A document entered as evidence revealed that then-Secretary of State Alex Padilla had warned the governor that his office couldn't enforce the law as it was written.
Two weeks before then-Gov. Jerry Brown signed the bill into law in September 2018, Padilla wrote him a letter stating he supported the “admirable objectives” of the law but said his office didn't have the capacity or authority to collect fines.
"Any attempt by the secretary of state to collect or enforce the fine would likely exceed its authority,” Padilla wrote.
Padilla said it would cost more than $10 million to create infrastructure for the program. Fines anticipated would be inadequate to fund the estimated $900,000 it would cost each year to maintain it.
He said the bill would only provide an incentive as long as there was enforcement.
Brown noted when he signed the bill that the law could be overturned in court but he wanted to send a message during the #MeToo era.
Supporters of the law said it has already been successful and a few other states have either passed similar legislation or were considering bills that would put more women on boards.
Before the California law went into effect, women held 17% of the seats on company boards in the state, based on the Russell 3000 Index of the largest companies in the U.S., according to the advocacy group 50/50 Women on Boards. As of September, the percentage of board seats held by women climbed to more than 30% in California, compared to 26% nationally.
Still, some 40% of the largest companies in California need to add women to their boards to comply with the law, the group said.
Bogart said the focus had been on education and outreach, sending a letter to corporations to notify them of the law. She said the office did not plan to send such a letter this year.
When asked if the secretary of state would never enforce the law in whole or part, she said she couldn’t say.
“I can’t tell you if we’ll never do it,” she said.
However, she repeatedly told Norton that there were no plans to implement regulations around SB826 or to collect fines.
She said they were enforcing the part of the law that required annual reports but that fines were discretionary.
The nonjury trial in Los Angeles Superior Court is expected to take six to seven days and will focus on a legal question. Judge Maureen Duffy-Lewis will rule whether the law is constitutional.