Will California mandate of women on corporate boards start a trend?
By
Joan Quigley | Oct 22, 2018
California often leads the country in legislation designed to protect or promote minorities or marginalized individuals. Or - putting it another way - California often drives people nuts with legislation mandating things those people think government should just leave alone.
California is doing both right now.
Last month the California legislature passed a bill to require all publicly-traded companies doing business in that state to have female representation on corporate boards or face stiff penalties. By the end of next year each board would need to have at least one woman as a voting member. By 2021 boards with five members would need two women and boards of six or more would need at least three women.
The sponsor of S826, Senator Hannah-Beth Jackson of Santa Barbara, said "Gender diversity on corporate boards is associated with increased profitability, performance, governance, innovation and opportunity."
The National Association of Women Business Owners agrees with her. They cite "numerous independent research studies" showing gender diversity on boards is beneficial to corporations and creates meaningful cultural change in the workplace.
Gov. Jerry Brown signed the legislation the last day of September after women's groups strongly pressed him to do so. Bill opponents dislike quotas in general and also argued such a law would discriminate against men and force companies to place unqualified women in positions of power. Companies that don't comply could be fined $100,000 for a first-time violation and $300,000 for subsequent violations.
And as you'd expect in California, the new law defines a woman as any person who self-identifies as female regardless of that person's designated sex at birth.
A majority of major US corporations on the S&P 500 have at least one woman on their boards, reports show, but only 25 percent have two or more. California is slightly behind the norm with only 15.5 percent of corporate board seats held by women. That's 565 women compared to 3,080 men. Half of the most recent California IPOs went public with all-male boards.
Last year the Pennsylvania legislature passed a resolution urging both public and private companies to have a minimum of 30 percent women on their boards. California previously tried to accomplish that by passing several resolutions, but there were no enforcement powers. So when board composition didn't change significantly, the legislature took a tougher stance.
Several European countries have mandated female representation for years. Norway, for instance, requires boards to consist of 40 percent females.
It's not going to be easy for California to enforce this law. Most corporations also have stockholders who must approve any changes to charters and bylaw requirements. Director candidates generally also have to be approved by stockholder votes.
It's going to take time for corporate leaders to identify and vet female board candidates, prepare proxy statements, schedule meetings and do all the other things necessary for stockholder approval. Then I wonder what might happen if stockholders don't vote to approve the nominated females by the state's deadline.
Opponents of the bill point out it is likely to be challenged on constitutional grounds of equal protection, and others warn no state can make laws affecting the governance of companies incorporated elsewhere.
Companies and agencies receiving significant amounts of state or federal monies must often comply with government-mandated rules for board composition. That makes sense when they're spending public money, but I'm not sure it makes sense for stockholder corporations. I understand the good intentions of the bill sponsors but their approach to diversity seems very heavy-handed.
New Jersey often follows California's lead. I wonder if we will this time.
https://www.nj.com/opinion/index.ssf/2018/10/will_california_mandate_of_women_on_corporate_boar.html