MESOPOTAMIA NEWS : BETTER RACES COMING / ANTI-WHITENESS  CampaignCalifornia Pioneers New Quotas For People Of Color & LGBT People

(Besserrassige Menschen mit interessanterer Sexualität können in Kalifornien jetzt auf die Macht der Quote setzen. Armes Texas, das die flüchtenden Kalifornier jetzt aufnehmen soll.)

Darren RosenblumContributor Diversity & Inclusion – I study corporate gender inequality from a queer/nonbinary angle.  28 Oct 2020

  •  California’s state government is nothing if not famous for its progressive legislation. It’s no surprise then that on October 1st, 2020, Governor Gavin Newsom signed into law a mandate on California-headquartered corporations to include on their boards “underrepresented communities” which includes individuals who identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who identify as gay, lesbian, bisexual or transgender. While most of the top ten economies now have quotas for sex, this is the first quota in the world to address racial inequality, sexual orientation and gender identity.

While the statute addresses new classes of identity, it mimics California’s recent quota for women, which is still in the process of implementation, and is facing substantial constitutional challenges. That quota copied other countries’ quotas for women on boards. Starting in 2003, Norway required forty percent of boards be women. By 2020, many countries have followed suit, including much of Europe. Quotas use either hard mandates, such as California has pursued, or  softer “comply or explain” rules. The goal is to diversify corporate leadership, which counts men as 96% of its executives and 80% of its board members in many developed economies. Numbers for people of color remain even lower. With a recent 2018 study finding that of the Fortune 100 board members only 19.5% identified as belonging to an underrepresented racial group. The top 10 public companies based in California are barely doing better in 2020 having only 23.5% POC board members.

These executive numbers perpetuate structural discrimination, since former executives typically become board members. Firms would benefit from improved governance with increased board diversity. One reason the new quota proves so necessary is that while the quota for women has increased women on boards, women of color still comprise a very small number of these board members.

Kristin Johnson, a law professor with technology firm expertise, observes the absence of underrepresented women of color serving on the boards of technology firms is deeply disappointing. Given California’s concentration of technology firms in California, the new quota holds tremendous promise to foster inclusion. She notes that board diversity “may foster broader inclusion in the C-Suite as well as among programmers who design, train and develop artificial intelligence and similar sophisticated technologies.”

The new statute covers more than 500 public companies based in California in the Russell 3000, which accounts for the vast majority of companies trading on major U.S. stock exchanges. Like that quota, it starts with a requirement of one member for each board of publicly traded companies headquartered in California by the close of 2021. Already 65% of firms covered by the statute comply with the one POC/LGBT requirement. We lack clear numbers on LGBT representation, even though advocates  have been working to increase it.

By the end of 2022, a much more challenging requirement kicks in: boards over four members must include two members from under-represented communities. Boards over nine directors need a minimum of three underrepresented members.

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This creates an incentive for firms to have larger boards so they can comply with the 1/3 quota instead of the 1/2 quota. Eight member boards must have two underrepresented members, which is a 25% requirement. Thus the quota varies from 25% to 50%, depending on board size, a critique previously made with regard to the gender quota. This range of numbers is not far from the requirement for critical mass –  the representation level necessary for an outsider group to have a voice in decisions, as pioneering law professor Lani Guinier argued with regard Black legislative representation. Critical mass ensures that voices were not merely tokenized. It may, however, raise objections from firms around the variability of the requirement.

It is this debate, perhaps, that prompted California’s legislature to move from quota-follower to quota-leader. Now California is the first jurisdiction to require companies to include POC and/or LGBT people on their boards. As some asked after Norway passed its leading statute, will California be a trend-setter? Given the dominance of California-headquartered firms among leading companies, just California alone will mark a sea-change in diversity and inclusion (“D&I”).

Despite likely challenges, the quota may inspire compliance. Corporate law professor Afra Afsharipour notes, “Despite legal challenges to CA’s quota for women board members, studies indicate that firms significantly increased female director appointments in response to the law. Similar challenges may face California’s newest quota, but the law’s passage may spur firms to act and provides leverage to investors who demand board diversity.”

Obvious conservative critiques will surface, as they did against the quota for women. They will argue that mandating representation creates reverse discrimination against majority individuals, and tokenizes individuals from underrepresented groups. These arguments distract us from massive distributive inequalities that leave underrepresented people outside of “paths to leadership,” to use U.S. Supreme Court Justice Sandra Day O’Connor’s phrase.

Others may argue that the state should not force leadership choices on firms, but such critiques distract from the structural sexism and racism endemic in corporate leadership. Most importantly, these critiques conveniently ignore the fact that it is the state that creates limited liability for firms, in which their owners avoid liability for firm losses. As a result, it is only fair for the state to demand a modicum of fairness. Solutions are necessary, even if they prove imperfect.

With any law, unintended consequences will arise. Quotas sometimes favor individuals whose traits match the dominant group, here, the “whitest” performing people of color. For POC, elite education may be the key to jumping this hurdle. Individuals and groups who face more socioeconomic challenges may perversely lose out in this competition. Sometimes, then, quotas may favor people within a group who constitute the “creamy layer” –those whose traits match the dominant group.

With LGBT folks, it may be that the most heteronormative or cisgender-performing of the LGBT folks – those who can “cover” their homosexuality or “pass” as straight – may be the ones to find themselves on boards. The quota does incentivize rising corporate stars to come out, but one risk with including LGBT folks in a quota principally about race is that firms may declare themselves diversity-compliant with few or no people of color. It’s an unlikely result, however, given the paucity of openly LGBT people in corporate middle management makes this unlikely.

These critiques focused on identity pose compelling questions. They do not, however, undermine the broader purpose of the quota, which is to counter structural discrimination, whether based on race, sexual orientation or gender identity.  California’s new quota then deepens the promise made in its quota for women – to ensure that the corporate world reflects – even to a small extent – the broader world. This is not solely about “seeming” diverse, about fairly distributing corporate leadership positions, which comprise some of the world’s highest-paid jobs. Diverse leadership matters for excluded groups. For the firm, and its shareholders, diversity improves corporate governance, by many different measures. It reduces the groupthink of having such a closed elite.

Let’s be clear – action is necessary, and California has provided a solution. It may be an imperfect one, but here California bravely serves as a laboratory for change.  Let’s hope the experiment succeeds in diversifying corporate leadership.