California To Require Female Board Directors

BY BROOKE PRITCHARD

Governor Brown talks to author of Senate Bill 826, Senator Toni Atkins. (Rick Pedroncelli/AP).

As of June 2017, roughly onefourth of publicly traded companies in California have no women on their boards. It was thus a historic moment for many feminists when Governor Jerry Brown signed California Senate Bill 826 into law. This law made California the first state to require publicly traded companies to include women as board members.

The state will mandate such companies to have one woman on their board by the end of 2019. By 2021, two women are required on boards with five directors and three women are required on boards with at least six directors. Failure to comply will result in a $100,000 fine for the first violation, and in a hefty $300,000 fine for subsequent violations.

Multiple studies cited in the text of the bill contend that having women on a board makes the company less risk averse and increases value–in terms of price of share and price to book value, as well as profit to the company–in terms of return of equity.

But will mandating quotas truly advance women in the workplace, or will it create tokenized positions that will provide little to no change for the feminist movement? Upon approving the bill, Jerry Brown suggests that this bill will progress women forward; however, he doesn’t “minimize the potential flaws that indeed may prove fatal to its ultimate implementation.”

One way to see the long-term effects is to take a glance at the Nordic countries, which have already taken the quota-driven approach for gender equality. According to the Global Gender Gap Index, Nordic nations, such as Iceland, Norway, and Finland lead in first, second, and third places.

However, Norway saw that a firm’s value fell by more than 12 percent for every 10 percent increase of female board members. Although, this was due to the fact that the female board members were, on average, eight years younger than their male counterparts and therefore significantly less experienced. Furthermore, while Iceland is the leading country in gender equality, the United States has a higher share of female managers. Overall, this undercuts the idea that quotas help shatter the glass ceiling.

State Senator and author of the bill, Hannah-Beth Jackson, contends that having more women in power will have a trickle-down effect on workplace equality; “With women comprising over half the population and making over 70 percent of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions, and profitability.” There is research to illustrate that women on boards are more likely to consider female leaders for senior roles in the company; a survey of over 500 hiring managers discovered that 74 percent of leaders reported that their hires tend to have a personality similar to their own. Jackson also suggests this quota will help decrease sexual assault and harassment in workplaces. This is a popular notion at a critical period in the #MeToo movement.

Meanwhile, Jillian Manus, managing partner with Structure Capital, a Silicon Valley venture fund, raised concerns that women will be inserted into these slots solely based on gender rather than merit. She states, “There must be a better way through education and incentivizing, rather than forcing and penalizing.” The California Chamber of Commerce agrees and raises the crucial question of constitutionality; Article I of the state constitution prohibits disqualifying a person for employment solely on their sex.

There is no doubt that there is a gender disparity in the workplace. This is why there are many champions of the law of Senate Bill 826. With half of the population being women, there are no doubts to seek qualified candidates onto board positions. However, to answer the lingering question of this bill’s effectiveness, the only remaining doubt is how these boards will execute this bill.

One comment on “California To Require Female Board Directors
  1. Hi Brooke It was great to see your response to new laws regarding adding women to publicly traded companies. There is no doubt that women are more and more being appreciated for their understanding and talents in world and business events, and will add a needed voice
    to decisions by many boards.

    Ray Pritchard

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