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Good morning. It's Courtenay — Dion left me the keys while he enjoys a much-deserved vacation.

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At 1,167 words, today's newsletter will take you 4.4 minutes to read.

1 big thing: California's move to kill all-male boards faces pushback

Illustration: Eniola Odetunde/Axios

California is being sued over its unprecedented law requiring all public companies headquartered there to have at least one female board member by 2020.

Why it matters: Pressure to diversify corporate boards has historically come from shareholders and special interest groups, not the government.

  • But with at least three states weighing similar legislation, critics are raising the question of government overreach.

Driving the news: The California law, signed last year by then-governor Jerry Brown, sets a penalty of $100,000 for public companies that don't have at least one woman on their board by yearend 2019. The looming deadline has drawn two lawsuits.

  • The most recent, filed last week by an investor in a company that makes X-ray security scanners and other products, argues that the "women quota" law is "not only deeply patronizing to women" but also "plainly unconstitutional."

Opponents are hoping to block the law before it gets stricter: By 2021, companies with five-person boards will have to have at least two women, while boards of six or more will have to have three.

  • A coalition led by the California Chamber of Commerce said in a letter to lawmakers that by focusing "only on gender," the law "potentially elevates it as a priority over other aspects of diversity."
  • Anastasia Boden, the lead lawyer in the most recent suit, told AP: “The law mandates exactly what the equal protection clause forbids — taking into account things like sex or race" in hiring.
  • Of note: Other countries, like Norway and France, have laws similar to California's.

Corporate stragglers in California are racing to expand or switch up their boards.

  • Skechers, the footwear company, has been pressured to add women to its board since at least 2014 — but didn't take action until seven months after the law was signed.
  • According to new data by the nonprofit 2020 Women on Boards, California saw the biggest annual increase of all U.S. states in companies with boards that are at least 20% female.
  • 70 of the 602 publicly traded companies headquartered in California still had all-male boards as of July, according to research by Clemson University and the University of Arizona.

What they’re saying: The latest lawsuit strikes "at one of the principal areas of vulnerability that was identified when the law was passed,” Teresa Johnson, a partner at law firm Arnold Porter, tells Axios.

  • “The state will also have to show that the quota solution under the law is the least restrictive way to remedy past discrimination.”
  • When he signed the law, Brown said, "It's high time corporate boards include the people who constitute more than half the 'persons' in America."
Bonus: How Wall Street is pushing for more women
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Source: ISS Analytics; Note: 2019 is year-to-date figure; Chart: Axios Visuals

Louder calls from big investors and other Wall Street heavyweights have also helped push the percentage of women joining boards to a record high.

For instance, proxy advisers — who wield a lot of influence in how shareholders vote on issues — say they plan to take board diversity more seriously.

  • Driving the news: Last week, Institutional Shareholder Services (ISS) released its final voting guidelines for the 2020 proxy season. As expected, ISS will "generally" recommend that shareholders vote against certain board members at companies with all-male boards.

Mega-shareholder State Street told Vox earlier this year that it voted against board directors over 1,000 times "for lack of board gender diversity." (Its voting record on other gender-related issues, though, is dubious.)

Nuveen, the investment arm of pension fund TIAA, has also pushed companies to put women on boards — though not at all costs.

  • Nuveen said it did not not support an unnamed portfolio company's first woman board member during this year's proxy season.
  • Nuveen said the appointment of the woman — who was related to two other board members, including the chairman — would have "tipped the board to have less than a majority of independent directors."
"The appointment of a director with an inherent penchant to support management can limit diversity of thought in board discussions and further concentrate the authority of insiders."
— Nuveen's 2019 proxy season review
2. Catch up quick

HP said Xerox's $33 billion takeover offer significantly undervalued the company, though it's "open to exploring a potential combination with Xerox.” (Wall Street Journal)

Saudi Aramco's IPO will give the company a valuation as high as $1.7 trillion — though it falls short of Saudi Crown Prince Mohammed bin Salman's hopes of a $2 trillion valuation. It will seek to raise up to $25.6 billion, "a fraction of the $100bn it had once hoped for," per the FT.

3. A lot is riding on the U.S. consumer
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Reproduced from LPL Research; Note: “Other components” includes housing, inventories, trade and government spending; Chart: Axios Visuals

Economists pared down estimates for Q4 GDP — prompted by worse-than-expected economic data on Friday.

  • The New York Fed now predicts the economy will grow just 0.4%, down from its prior forecast of 0.7%. Meanwhile, the Atlanta Fed trimmed its estimate to 0.3% from 1.0%.
  • Goldman Sachs cut its estimate too on Friday, per CNN, though at 1.9% it's far rosier than the regional banks' projections.

Between the lines: The downgrades would have been worse, if not for upbeat retail sales figures.

  • This has been the narrative of the U.S. economy recently: strong consumer spending offsetting lackluster business investment.

The big picture: President Trump's tax cut jolted business investment initially, but it "quickly dwindled," as the New York Times reports. Now spending by corporations on factories and other investments is contributing less to GDP than before Trump took office.

  • "Some conservative economists and business leaders say the effects of the tax cuts were undercut by uncertainty from Mr. Trump’s trade war, which is slowing global growth and prompting companies to freeze projects," the NYT notes.
  • "Other economists say the fizzle is predictable because high tax rates were not holding back investment."

The bottom line: "Consumer spending has largely propelled GDP over the past two quarters, countering business spending’s noticeable drag on growth," analysts at LPL Financial write.

P.S.: FedEx's CEO Fred Smith, whose company is the subject of the NYT story cited above, is challenging A.G. Sulzberger and the paper's business editor to a public debate on tax policy.

4. Hong Kong violence crimps fragile economy

Riot police and protesters clash in the Hung Hom district of Hong Kong on Monday.
(Photo: Ye Aung Thu/AFP via Getty Images)

The unemployment rate ticked up to 3.1% in Hong Kong last month from 2.9%, according to new data released by the government today.

  • The jobless rate in the consumption and tourism sectors jumped to the highest level in two years.
  • “Retailers, restaurants and hotels are cutting wages and hours or letting staff go just to survive,” Bloomberg reports.

Why it matters: It adds to a spate of worsening economic indicators in Hong Kong, which is in the midst of its first recession in 10 years.

  • "The violence and prospect of a harsher crackdown has battered Hong Kong's economy," the FT notes — adding to pain the economy was already feeling from the global economic slowdown and the U.S.-China trade war.

The backdrop: The standoff between pro-democracy protestors and police isn’t letting up — capping a stretch of the bloodiest clashes between police and protesters since the protests began in June.

5. 1 🧢 thing: The Dow hats are back

Photo: Spencer Platt via Getty Images

It took 90 trading days for the Dow to hit a new thousand-point milestone. With the record came the traditional baseball caps sported by traders on the floor of the New York Stock Exchange.

The backstory: Longtime floor trader Peter Tuchman, who's commandeered the tradition since the Dow hit 15K in 2013, ordered the hats two weeks ago in anticipation of the Dow hitting 28K.

  • "I don’t bring [the hats] out until we come within 2-3 points away" from the record, says Tuchman, pictured above (and in many other stories).

See you tomorrow!