In a forthcoming article, I explore an often overlooked yet important facet of corporate governance: the interplay between state-mandated board diversity and First Amendment rights. My focus is on instances where states obligate corporations to meet specific quotas for board membership based on race, nationality, ethnicity, gender, sexual orientation, or sex. This contrasts with cases like the recent Fifth Circuit decision in Alliance For Fair Board Recruitment v. SEC (2023), where Nasdaq, a regulated but private entity, implemented its own board diversity guidelines.

The article argues  that state-imposed board diversity mandates raise significant concerns under free speech protections. Historically, scrutiny of these mandates has revolved around state and federal Equal Protection concerns, but I examine them under compelled speech principles.

At the heart of the analysis is the question, Do these mandates constitute compelled commercial or ideological speech? The article proposes that they are likely compelled ideological speech, thus requiring strict judicial scrutiny – the most rigorous standard of constitutional review. As a result, board diversity mandates, while well-intentioned, may infringe upon the expressive autonomy of corporations, effectively coercing corporations and their board members and shareholders to align with specific ideological positions endorsed by the state.

The Evolution of Corporate Speech Rights

The evolution of corporate personhood and commercial speech rights presents a fascinating journey. The Supreme Court’s initial stance on commercial speech was restrictive, as seen in Valentine v. Chrestensen (1942), where commercial advertising was deemed outside First Amendment protections. This view, however, began to shift in the 1970s with cases like Bigelow v. Virginia (1975) and Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976). These rulings recognized the importance of commercial speech in the public discourse and extended First Amendment protections to it.

The Central Hudson Gas & Electric Corp. v. Public Service Commission (1980) further refined this perspective, introducing an intermediate scrutiny test for evaluating restrictions on commercial speech. This test ensures that the regulation of commercial speech balances governmental interests with First Amendment rights.

Citizens United v. Federal Election Commission (2010) marked a significant turn, extending First Amendment protections to corporate political speech. This decision highlighted the Court’s recognition of corporate entities as key participants in public discourse, capable of engaging in constitutionally protected communications.

The doctrine of compelled speech emerged from West Virginia State Board of Education v. Barnette (1943), which established the First Amendment’s protection against compelled speech. This principle was further reinforced in Wooley v. Maynard (1977), emphasizing the right to abstain from endorsing specific ideologies.

The doctrine of compelled commercial speech, as developed in Zauderer v. Office of Disciplinary Council (1985), presents a nuanced aspect of First Amendment jurisprudence. This ruling focused on compelled factual and uncontroversial disclosures in commercial speech, introducing the Zauderer test. This test balances the government’s interest in consumer protection with the commercial speaker’s First Amendment rights.

Subsequent rulings have expanded the scope of Zauderer, applying it to various contexts, including public health and ethical consumerism. Courts have upheld requirements for businesses to disclose information about products and services, aligning with broader societal goals.

The Constitutional Implications of Board Diversity Mandates

Examining whether board diversity mandates compel corporations to “speak” in a certain manner involves probing the nature of the “speech” compelled and the question of whether it is protected under the First Amendment.

The crux of my article’s argument is that such laws could inadvertently compel corporations and their board members to subtly convey or align with specific social values concerning diversity and inclusion. These mandates go beyond typical corporate governance norms and standard disclosure requirements, effectively requiring corporations to tacitly endorse certain societal and political viewpoints on diversity. This shift affects not only the corporate entity but also extends to individual board members and shareholders, raising potential concerns about infringing upon their First Amendment rights.

Given the ideological nature of this speech, strict scrutiny seems appropriate. The Supreme Court jurisprudence bars mandates that compel ideological speech, emphasizing the fundamental right to freedom of belief and thought. This principle, highlighted in cases like Barnette and Hurley, affirms individuals’ and entities’ autonomy in expression. The interplay between factual disclosures and ideological expression, as in Riley, suggests heightened scrutiny for such mandates.

Considering corporate personhood, as acknowledged in landmark cases like Hobby Lobby and Citizens United, board diversity mandates may also risk transforming private corporate boards into entities resembling public accommodations. This shift raises significant concerns, particularly in light of Hurley’s delineation of private entities’ expressive activities. The danger lies in the state imposing its own “truth” on matters of ideological speech, which directly contradicts democratic principles and underscores the importance of safeguarding self-expression from governmental interference. While these mandates aim to promote diversity, their potential conflict with First Amendment principles, especially regarding the autonomy and expressive freedoms of corporate entities and individuals, presents a complex legal and ethical dilemma.

In essence, board diversity mandates aim to diversify perspectives within corporate boards. However, when subjected to strict scrutiny, it becomes questionable whether they fulfill a compelling state interest and represent the most narrowly focused, least restrictive means to achieve that interest.

Ultimately, the alignment of board diversity mandates with First Amendment principles remains dubious. These mandates, as currently formulated, pose profound challenges to the autonomy of corporations and the expressive freedoms of individuals associated with these entities. This calls into question their compatibility with the core values of a free and democratic society. While the goals of these mandates are commendable in promoting diversity and inclusivity, their potential clash with fundamental constitutional freedoms presents a dilemma that requires serious consideration and debate.

REFERENCES

Alliance for Fair Board Recruitment v. SEC, No. 21-60626 (5th Cir. 2023).

Bigelow v. Virginia, 421 U.S. 809 (1975).

Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014).

Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980).

Citizens United v. Federal Election Commission, 558 U.S. 310 (2010).

Crest v. Padilla I, No. 19-STCV-27561, Los Angeles Superior Court (2022).

Crest v. Padilla II, No. 19-STCV-27561, Los Angeles Superior Court (2022).

Hurley v. Irish-American Gay, Lesbian & Bisexual Group of Boston, Inc., 515 U.S. 557 (1995).

Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781 (1988).

Valentine v. Chrestensen, 316 U.S. 52 (1942).

Virginia State Board of Pharmacy v. Virginia Citizens Consumer Counsel, 447 U.S. 557 (1976).

West Virginia State Board of Education v. Barnette, 319 U.S. 624 (1943).

Wooley v. Maynard, 430 U.S. 705 (1977).

 Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985).

This post comes to us from Professor Salar Ghahramani at Penn State University. It is based on his forthcoming article, “Corporate Governance and Compelled Speech: Do State-imposed Board Diversity Mandates Violate Free Speech?” available here.