Connecting state and local government leaders

Could California Set Quotas For Women On Corporate Boards?

California legislators are considering requiring publicly traded companies to put women on their boards.

California legislators are considering requiring publicly traded companies to put women on their boards. Shutterstock

 

Connecting state and local government leaders

Legislation under consideration in California would require publicly traded companies based in the state to put women on their boards.

Women make up little more than half the US population, but occupy only 18% of its corporate board seats. Meanwhile, more than a fifth of the 3,000 largest publicly traded US companies don’t have a single woman on the board (here’s a list). Even if women got an equal share of new board appointments, the US government estimates it could take four decades for America’s boardrooms to reach gender parity.

Not content to wait until 2058, California legislators are proposing to speed up the process. They’ve introduced a bill that would require publicly traded companies based in the state to have at least one woman on their board starting in 2020. Then, in 2022, companies with at least five directors would be required to have two female board members, and those with at least six directors would need at least three. Companies failing to meet those obligations could be fined “an amount equal to the average annual cash compensation for the directors of the corporation” for a first offense, with escalating penalties for subsequent infractions.

The bill, SB-826, passed the state senate, and now needs the approval of the state assembly by Aug. 31 to advance to the desk of California governor Jerry Brown.

While business lobbyists are lined up to oppose the bill, saying it will force them to privilege women even above more deserving male minority candidates, the concept of board quotas for women isn’t new. Businesses in Europe have been required to add women to boards since 2003, when Norway introduced the first quotas, and now economies as large as France and Germany have them in place. (In France, the target is 40%; in Germany it’s 30%.) There’s no evidence corporate governance has suffered in those countries, and there’s reason to believe its improved, by broadening the perspective around the board and by forcing companies (at least when they comply) to be more thoughtful about the talent they nurture and promote in their organization.

California, despite its progressive reputation, actually trails the rest of the US in female board representation, with 1.65 women per board, compared to 1.75 for the US as a whole, according to boardroom data provider Equilar. About 18%, or 37, public companies with annul revenues of $5 million or more would be out of compliance, Equilar says. While most are small and relatively anonymous, among them is Sketchers, the footwear company based in Manhattan Beach, which has no women on its board despite past promises to change its ways. (Skechers didn’t immediately respond to a request for comment).

There could be unintended consequences if the law passes, including giving companies yet another excuse not to go public. Still, like with many public policy initiatives, from paid weekends to seat-belt laws, quotas for women on boards may eventually be a mandate that seemed controversial at its inception, but whose logic becomes blindingly obvious after the fact.

Oliver Staley covers companies, management, and careers at Quartz at Work, where this article was originally published.

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