Last week, the U.S. Ninth Circuit Court of Appeals heard oral arguments in a crucial case for America and our charitable sector. As we’ve noted here before, The Philanthropy Roundtable filed an amicus brief in July in support of the Pacific Legal Foundation’s case Meland v. Padilla.
The Court heard arguments that have quickly spread since California lawmakers enacted SB 826 in 2019, requiring public companies based in the state to have a minimum number of women on their boards of directors. These arguments are used to support coercive mandates in other states considering similar legislation and even a proposal by the Nasdaq to promote diversity quotas on listed companies’ boards.
On the other side, the Court heard the case that the law unconstitutionally discriminates based on gender. While diversity, properly defined, is a laudable goal, this law imposes fines on companies that do not or cannot meet the quotas. This could cause many of them to flee the state and any drain from California means fewer resources for charitable causes in the state. The problem for the charitable sector is simple: less wealth and less money invested in California businesses means less charitable giving benefiting Californians.
As the Roundtable noted in our amicus brief, the law has already led to a loss in value of over $60 billion. As more businesses suffer higher costs, onerous fines, and leave the state, Californians and the charities they support will continue to pay the price of this mandatory discrimination. Our interest in this case runs deeper than the immediate loss of charitable resources. The major concern is that these mandates may spill over into the charitable sector, creating a dual punishment of fewer funds and higher compliance costs.
The damage this law will inflict is not limited to California’s borders. Over 12 percent of public companies are headquartered in the state. One-eighth of public firms in the U.S. will see an impact from California’s mandate alone as they are required to meet the prescribed quotas or pay steep fines. Nevertheless, the law has been held up as a model for other states considering similar mandates. Meland v. Padilla has the potential to stop these efforts and avoid sweeping economic damage. The Philanthropy Roundtable will continue closely watching this case and monitoring the law’s impact on philanthropy.
