“Are You Ready to Measure and Report your Building GHG Emissions?” a live webinar Tuesday, August 16 from 9 to 10 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary but you must register here.

Corporate diversity is too serious a matter to be left to the politicians.  Maryland has published, for public comment, regulations implementing the corporate diversity law enacted by the legislature in 2021.

But the proposed regulations are unconstitutional on their face, violating the Equal Protection Clause of the U.S. Constitution and Article 24 of the Maryland Constitution.

The new corporate diversity law as proposed to be implemented through the regulations, does Not benefit businesses and does Not benefit “unrepresented communities” whose members self-identify as Black, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native or with one or more of those racial or ethnic groups.

In summary, the statutes enacted last year require certain business entities in the State to demonstrate either: membership of “unrepresented communities” in their board or executive leadership; or support for “underrepresented communities” in their mission to qualify for State capital grants, tax credits, or contracts worth more than $1.0 million. The law also has other requirements, including significant race reporting mandates.

While the statutes as enacted are problematic themselves, these regulations seek to implement the new law by requiring entities to have a certain racial composition on its board or executive leadership in order to receive a State benefit. Such is without dispute an equal protection violation running afoul of the basic tenet of universal human equality. The use of race in a government program must meet the requirements of the Equal Protection Clause of the U.S. Constitution. The Equal Protection Clause provides that no state shall “deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const. amend. XIV. A government program that uses a race classification is constitutional only if it meets the strict scrutiny standard, which requires that the program be narrowly tailored to support a compelling government interest. None of that is even suggested here. And lest there be any question, the government bears the burden of justifying its use of individual racial classifications. Maryland has not in this instance.

“Because a race or gender-conscious program is constitutionally suspect, the Supreme Court has essentially put the burden on a government entity with such a program to justify the program with findings based on evidence.” 91 Opinions of the Attorney General 181, 183 (2006).

These regulations also flout the U.S. Supreme Court’s Regents of the University of California v. Bakke 1978 decision which struck down race exclusive quotas as violative of the U.S. Constitution and the Civil Rights Act of 1964.

Additionally, the Maryland Attorney General commented on the legislation that is being implemented, HB 2021-1210, and raised these very same equal protection concerns, going as far as suggesting how these regulations might be framed to mitigate the risk of a successful Constitutional violation challenge. Lip service, at best, was paid to that advice.

Moreover, the failure to engage the public in the process of promulgating these regulations not only kept the bureaucrats from receiving good input, but was a clear violation of Maryland’s Open Meetings Act. Given that multiple agencies were involved, as the Maryland Register notice admits, none of those meetings were held in public, there was no public notice of those meetings, and the public was not allowed to observe or inspect meetings minutes, all despite inquiries and requests from the public to do so.

That HB 1210 was enacted without the Governor’s signature does not justify misunderstanding or misdirection, and should not result in any less effort by the Executive branch in implementing an enactment that at a minimum passes Constitutional muster, but ideally advances egalitarian aims that date to 1776 and were articulated for American commerce in the Declaration of Independence.

HB 1210 was sent to the Department of Commerce for implementation because it fits squarely within the environmental social governance (ESG) space and was to be a positive for Maryland business, but inexplicably the proposed regulation will not stimulate private investment or create jobs, but rather may cause new businesses to locate outside of the State and discourage expansions of existing businesses.

If there is any question about the legal conclusions in this post, a very similar California statute enacted as Assembly Bill 979 was found unconstitutional earlier this year for the same equal protection flaw, in Robin Crest, et al. v. Alex Padilla (No.20ST-CV-37513) as we blogged in California Racial, Ethnic and LGBT Quotas for Company Boards Ruled Unconstitutional.

We note approvingly that the judge striking down that California law described it as violative of the norms of our society in 2022 which today is based on inclusion and equal opportunity. Additionally, many would agree a homogenous board is vulnerable to stagnant thinking and common assumptions; it is also less flexible in responding to challenges. This results in poorer business practices, less innovation, and ultimately less profit. A heterogeneous board potentially avoids these pitfalls and generally leads to a healthier business that makes more money. So, the California and Maryland legislatures’ enactments may have been intuitively sensical, but ignored that we are a nation with 246 year old constitutional protections of the individual.

So, of greatest dismay is that the very subject matter of this enactment is universal human equality, a key element in modern ESG policy, but the proposed corporate diversity regulations implementing the law violate the U.S. and Maryland Constitutions on their face. It is not irony, it is wrong. Tragically, the Maryland legislature’s egalitarian sympathy will not survive this administrative act of the Executive branch.

As promulgated the proposed regulations put businesses in the State in jeopardy without advancing universal human equality. Misquoting Charles de Gaulle, corporate diversity is too serious a matter to be left to the politicians and would be better left to the emergent ESG marketplace. You can comment on these regulations before July 18, asking that they be rewritten.

Save the date, Tuesday, August 16 from 9 to 10 am EST, when Stuart Kaplow and Nancy Hudes, two of the attorneys at ESG Legal Solutions, present a complimentary live webinar, “Are You Ready to Measure and Report your Building GHG Emissions?” Details will be at www.ESGLegalSolutions.com