Judicial Watch: Closing Arguments Scheduled in California Gender Quota Lawsuit

Expert Testimony in Given against California Gender Quota

(Washington, DC) – Judicial Watch today announced that closing arguments are scheduled in the California Superior Court regarding its case challenging California’s gender quotas for corporate boards. Closing arguments for this case are scheduled for February 16, after a 27-day trial:

            Date: February 16, 2021

            Time: 10 a.m. PT, 1 p.m. ET

            Location: Courtroom/Department 38

 Superior Court of California Los Angeles

            Stanley Mosk Courthouse

            111 North Hill Street

 Los Angeles, CA 90012

Judicial Watch also released 220 pages of trial testimony by its expert witness, Jonathan Klick, Ph.D., J.D. Klick is an expert in econometrics, statistics and corporate law and testified to the court that the studies on which California relies to prove its case is deficient and unreliable.

The testimony came on days 15 and 16 of the ongoing trial in California Superior Court challenging the constitutionality of California’s gender quotas for corporate boards of directors (Robin Crest et al. v. Alex Padilla (No.19STCV27561)). Judicial Watch filed the lawsuit in Los Angeles County Superior Court in 2019, on behalf of California taxpayers, Robin Crest, Earl De Vries and Judy De Vries. The lawsuit challenges a 2018 law, known as Senate Bill 826, which requires every publicly held corporation headquartered in California to have at least one director “who self-identifies her gender as a woman” on its board of directors by December 31, 2019. The law also requires corporations to have up to three such persons on their boards by December 31, 2021, depending on the size of the board.

In its lawsuit challenging Bill 826, Judicial Watch argues that the quotas for women on corporate boards violate the Equal Protection Clause of the California Constitution, among other provisions.

At trial, government lawyers defending the quota have alleged that gender quotas not only remedy discrimination but also improve overall corporate performance.

Judicial Watch’s expert analysis rejects this: “the evidence offered for each of these points (underrepresentation of women on boards, discrimination as the cause of this underrepresentation, and that research shows a differential benefit of appointing women, as opposed to men, in terms of firm performance) is deficient and unreliable.”

Klick testified further in trial that:

[M]ost of the results [on corporate performance related to gender composition of boards], including the one cited in SB-826, don’t involve even regressions, much less more sophisticated designs. And likewise, as with the earlier study, the Credit Suisse study, provides no indication of statistical significance as between the differences.

During the trial, Klick was on the stand for two days and testified exhaustively about the statistical techniques and types of scientific investigations that would be required to show a causal relationship between gender quotas and increased corporate performance. During his testimony, Klick took the court through the “numerous independent studies” cited in Senate Bill 826 and an accompanying legislative report that allegedly demonstrate “publicly held companies perform better when women serve on their boards of directors.” Klick summarized for the court the deficiencies and unreliability of most studies:

[T]he general, overall statement I would like to make is the literature generically on women and boards is relatively unsophisticated. What I mean by that is the sort of natural experiments that I was talking about, which again by the late 1990s had become the standard in empirical policy analysis, empirical inference of this sort is largely absent in the literature [on women on boards of directors] as a whole.

Beyond generalizations, Klick also provided the court detailed explanations of why the numerous studies and analyses relied on by the California legislature were deficient and unreliable. He also pointed out a plethora of other studies contradicting the presuppositions behind Bill 826, which the legislature simply ignored. In addition, Klick testified that the conclusions of a comprehensive literature review he performed in 2017, before this case arose, focusing on studies that examined the relationship between gender quotas, corporate performance and the beneficial effects of quotas on women in the workplace generally:

Remember that correlation isn’t causation.

But there are things that we can do through regression techniques and through natural experiments and more sophisticated designs that gets us more confidence in determining whether or not a given correlation is causation, and we’ve had those tools for at least 20, 25 years now.

And they are the tools that modern social scientists and policy analysts, financial people use every day, and it’s a reasonably strong consensus about the value of these tools.

If we look at the literature that was used directly in support of 826, those tools largely seem absent…. seem to have been ignored, or, at least, unremarked on in the route to 826 and the advocacy for 826. On the particular results that we think we can draw from the literature … a representative picture of the literature … is that it draws no definitive conclusions.

[M]any of the studies lead to a statistically insignificant relationship between board composition and various outcomes for firms. Of the studies that don’t find a zero or statistically zero effect, there are, largely speaking, as many studies that find positive effects as find negative effects. And that’s even before we put any filters on quality of the studies and things like that.

That’s what I found for sure in my literature review that I did prior to this case.

***

I’m not the only one that’s done an academic literature review in this area. There’s been a handful of them, and they uniformly have come to the same conclusion.

Perhaps my favorite one, just because of the …  source of it is a literature review written in 2014 in the Delaware Journal of Corporate Law by Deborah Rhode and Amanda Packel…. [T]he reason this is so notable is Deborah Rhode, she’s deceased now … was at Yale, and later when she was at the Stanford Law School, she really was a founding mother of feminist legal studies and those sorts of things – but she also was a great academic and a very honest academic. And in her literature review in 2014 she said, you know, as much as people might want there to be a business case for diversity, the current literature does not support it.

***

[T]hose are just two, my literature review and Deborah Rhode’s literature review, and there are others that come to roughly the same conclusion. I think that’s probably the most fair and honest reading of this literature.

“This historic trial shows discriminatory gender quota mandate that is blatantly unlawful and unconstitutional,” said Judicial Watch President Tom Fitton. “After weeks of taxpayer money being used to defend the law, we hope the trial court will strike down these pernicious gender quotas.”

In September 2020, Judicial Watch also filed a taxpayer lawsuit to prevent California from enforcing Assembly Bill 979, which requires the same corporation subject to the gender-based quota also to satisfy racial, ethnic, sexual preference and transgender status quotas by the end of the 2021 calendar year.

In January 2021, Judicial Watch filed a public comment with the Securities and Exchange Commission in response to a proposed rule change requiring race and gender quotas on the boards of corporations listed on the Nasdaq exchange.

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