Racial Quotas Could Be Mandated for California Companies

Racial Quotas Could Be Mandated for California Companies

Last year, California became the first state to mandate women on corporate boards.  Now the legislature wants to make California the first state to require racial quotas. Assembly Bill 979 introduced by Chris Holden (D-Pasadena) and Cristina Garcia (D-Bell Gardens) forces companies to appoint board members from “under-represented communities” by the end of 2022 or face fines between $100,000 and $300,000. If passed, California company boards must have the following quota of directors from underrepresented communities:

  • One for companies with four or fewer directors
  • Two for companies with five to eight directors
  • Three for companies with nine or more directors

Supporters of racial quotes argue that companies with boards that have more women and minorities perform better.  The draft bill cites a McKinsey study that “for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes rise 0.8 percent.” This claim confuses cause and effect, and puts the cart before the horse writes Washington D.C. attorney Hans Bader.

Bader explains that the pool of qualified female and minority applicants in a company for a directorship naturally rises over time. Companies that don’t grow hire fewer people and will have fewer women and minorities in its ranks than vibrant companies that are growing and hiring new people:

The company’s growth does not occur because of the increase in women in the company; rather, the increase in women in a company occurs because of the company’s prior and pre-existing growth. This is also why growing companies in the U.S. tend to have more Asians, Hispanics, and women than companies that aren’t growing: the percentage of each graduating class that is Asian or Hispanic or women grows each year. It’s not because affirmative action helps company performance — it doesn’t.  Rather, it’s because growing companies hire new blood, and new blood is more heavily Asian and Hispanic (and female) than the older generation, among whom businesspeople are overwhelmingly white men.

The flawed analysis of the McKinsey study and others like it fail to recognize the root of employment disparities — the choices that women make to balance career and children, and the abominable quality of education that minority students receive in California’s poor urban public schools.

Bills that seek to increase a board’s gender or ethnicity are also contrary to the U.S. Constitution’s promise of equality, says Anastasia Boden, a senior attorney with the Pacific Legal Foundation.  Boden has led a lawsuit challenging California’s women quota law. “It forces people to make choices on the basis of race or sex in order to gain those numbers, which in themselves are not realistic about a world full of equal opportunity,” she said.

Finally, there’s the issue that progressive politicians will never bring up – the stigma of being the   mandated token on a board.  Quotas send the message that women and minorities can’t attain the highest levels of leadership without special help — what President George W. Bush courageously called the “soft bigotry of low expectations.”

We’ve said this before on Right by the Bay – a system of meritocracy is the only way a melting pot state like California can operate, succeed, and prosper.  The alternative is a system of gender and racial spoils, where the politically favored get a hand up. I would add that it is curious that the original version of the bill did not include Asian Americans as “underrepresented minorities.”  Tacking on this group as an afterthought perhaps reveals the political angst by progressives’ over the devastating impact Prop. 16 (the return of racial and gender preferences in university admissions, government jobs and contracts) would have on Asian American communities, who largely vote Democrat.

Boardrooms are mostly composed of white males today because they have dominated the business world for many decades.  But as minorities and women gain more experience, they’ll reach boardrooms on their own, free of stigma and with the respect and credibility they’ve earned.

Rowena Itchon is senior vice president of the Pacific Research Institute.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.