California to Mandate Gender Diversity in the Boardroom
California legislators have recently passed a bill that would mandate publicly-traded companies that are headquartered in California to appoint one woman (at a minimum) on their board by the end of 2019. Boards with five or more directors will need to have at least two or three women by the end of 2021, contingent on the size of the board. Although California Governor Jerry Brown has yet to sign the bill, if he does, non-compliant companies will have to face financial penalties if they don’t adhere to the legislative mandate.
California legislators outlined the returns for board inclusivity in their bill and also noted that one-fourth of California’s public companies in the Russell 3000 index have no women on their boards of directors; and for the rest of the companies, women hold only 15.5 percent of the board seats. A 2017 report being prepared by Board Governance Research LLC, conducted by University of San Diego professor Annalisa Barrett, also found that as of June 2017, among the 446 publicly traded companies included in the Russell 3000 index and headquartered in California, representing nearly $5 trillion in market capitalization, women directors held 566 seats, or 15.5 percent of seats, while men held 3,089 seats or 84.5 percent of seats.
However, the bill has faced significant pushback. Opposition within California’s Chamber of Commerce has opined that a new quota solely based on gender only accounts for one component of diversity and could potentially place companies in a position to turn down a male board candidate based on his sex. That being said, most of the counterarguments being made are not challenging the value-add of having a diverse board so much as they are suggesting that either this bill is too narrow in scope and may have negative costs associated with its implementation.
Two Roads Diverged in a Wood…
There is ample evidence to suggest that board diversity adds to the overall utility of industry productivity. In a global study conducted by Thomas Reuters Global, the top 100 companies with the most proficient scores in diversity and inclusion often exceeded benchmark expectations for performance to include but not limited to: better return on equity, better profit margins, and higher dividend yields.
While there doesn’t seem to be much opposition to promoting diversity in the boardroom, there are varying opinions on the best route to achieve that goal. For example, last year Pennsylvania’s House of Representatives unanimously passed a resolution urging all PA-based businesses (public, private, and non-profit) to have a minimum of 30% women directors on their boards by December 31, 2020. While PA’s resolution provides an aspirational goal for its businesses, CA is putting more teeth into their legislation by requiring gender diversity. In other words, while two roads may diverge in a wood, California has chosen the one less traveled.
“There are many roads to Mecca and many ways we can accomplish strong, wise, smart, and diverse boards,” said Davia Temin, President and CEO of Temin and Company. “On a principal level, I’m not very much for quotas. However, I think that the law is going along with the drumbeat of interest in getting more women on boards. I think it would happen regardless of whether there is a law or not because I think the momentum is there, but I do think this is going to hurry it along.”
N2K’s Chief Cybersecurity Strategy Officer, Simone Petrella, also had a mixed reaction to the proposed California law. “I appreciate the movement to increase diversity but, in my experience, when I see things like this get enacted, it creates a tendency to place women on boards for the sake of a quota. But, if that individual isn’t holding themselves up to standard it can make it hard for other women down the line to take advantage of similar opportunities. No legislation is going to be perfect, you have to pass imperfect legislation and then look for impact and be willing to make modifications to see if it will ultimately succeed,” Petrella concluded.
When asked if the legislation would test the pipeline of potential qualified female candidates, Temin seemed less concerned. “I do think there is a great pipeline for women directors – and a full pipeline for women directors that exist already, so I think that should this law be on the books, they will find some great people to populate the director ranks.”
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Davia Temin is a frequent speaker around the world on crisis, reputation, and culture management, leadership, corporate governance, women’s leadership, resilience, and what boards and leaders need to know about media, social media, and artificial intelligence. A nationally recognized writer, commentator, and expert in her fields, she has appeared on CBS, CNN, NBC, Bloomberg, PBS, ABC, and in The Wall Street Journal, and numerous other publications and networks around the world. From 2005 to 2014, Davia served as the First Vice Chair of the Board of Trustees of The Girl Scouts of The United States of America, and the Chair of the Board Fund Development Committee.