California Bill to Mandate Women on Boards Faces Challenge From Businesses

California Bill to Mandate Women on Boards Faces Challenge From Businesses

The California legislature is considering a bill that would make it the first state in the US to require women’s representation on the boards of companies headquartered there, but the business community is pushing back, saying the proposed mandate is unconstitutional and counterproductive, Antoinette Siu reports at TechCrunch:

SB 826, which won Senate approval with only Democratic votes and has until the end of August to clear the Assembly, would require publicly held companies headquartered in California to have at least one woman on their boards of directors by end of next year. By 2021, companies with boards of five directors must have at least two women, and companies with six-member boards must have at least three women. Firms failing to comply would face a fine. …

Yet critics of the bill say it violates the federal and state constitutions. Business associations say the rule would require companies to discriminate against men wanting to serve on boards, as well as conflict with corporate law that says the internal affairs of a corporation should be governed by the state law in which it is incorporated. This bill would apply to companies headquartered in California. … Similarly, a legislative analysis of the bill cautioned that it could get challenged on equal protection grounds, and that it would be difficult to defend, requiring the state to prove a compelling government interest in such a quota system for a private corporation.

Legislative mandates or quotas for women on corporate boards are rare, with only a few European countries having adopted them. Norway was the first to do so, introducing a 40 percent quota in 2003, while France, Germany, Iceland, and Spain have since introduced their own mandates. Sweden had an opportunity to join this group but declined it early last year, when the parliament voted down a proposal to fine listed companies where women make up less than 40 percent of directors. In these countries, quotas have proven effective at driving gender equality on boards; critics acknowledge this, but argue that making women’s representation a matter of compliance isn’t changing corporate cultures to really value women in leadership.

There are currently 445 publicly traded companies based on California, Siu writes, and one quarter of them still have all-male boards. Smaller companies are more likely than large firms to have no women directors.

Women’s representation on boards is limited by the process through which boards search for new members, which typically draws on the current directors’ mostly-male networks of other executives. Because they don’t know any women with the right qualifications for a seat on the board, these directors too often believe those qualified women don’t exist. When directors don’t go out of their way to find women candidates, decline to look outside their networks, or set standards of experience few women can meet, this helps ensure that the board remains a boys’ club. The Boardlist, a project launched in 2016 with a focus on the tech sector, connects highly qualified women leaders with opportunities to serve on boards.

Even when women do make it to the boardroom, they often lack institutional and network support, and rarely make it into positions of influence on the board committees that have the most power to shape corporate governance. Among Fortune 500 companies, just 5 percent of executive committees have a woman as chair, according to a study published earlier this year, while only 6 percent of board chairs are women, and half of those are also the CEO.

The business impact of gender equality on the board is a matter of debate: Some studies have suggested a correlation between women in corporate leadership and improved performance, or pointed specifically to how women directors can expand the board’s range of skills and expertise. However, a survey of academic research conducted last year found no relationship, positive or negative, between women’s representation on the board and firms’ bottom-line financial performance—though the author of that meta-study stressed that women’s representation on boards is important as a matter of diversity and inclusion, regardless of whether there is a direct and immediate financial benefit. Survey data has also shown that male directors are much less likely than their female peers to say that gender diversity on the board improves performance.