The unconformity of California’s gender quota law with the contractual theory of corporate law

Abstract

Entrepreneurs prefer freedom in choosing the rules that will govern their businesses. However, the recently enacted California law requiring every publicly held corporation based in California to have women on its board of directors poses a threat to this freedom. While the law has been controversial in terms of its constitutionality, it is equally controversial under corporate law since it is incompatible with corporate law’s general principles when evaluated through the lens of contractual theory. This paper argues that a mandatory gender quota law cannot be justified through contractarian theory grounds, and therefore, should be displaced. It analyzes the main concepts concerning the gender quota law itself and distinguishes between close and publicly held corporations to show that the law’s coverage supports the alleged discrepancy. The methodology employed in this paper is doctrinal and American case law and legal scholarship are used in its discussions.