This California law got companies to add record numbers of women to their corporate boards
Publicly traded companies headquartered in California have added record numbers of women to their boards in the three years since the state set gender quotas.
Before the California law went into effect, women held 14.6% of the seats on company boards in the state, based on the Russell 3000 Index of the largest companies in the U.S.
Now they hold 32%, more than the average for all Russell 3000 firms, according to Clemson University professors Daniel Greene and Vincent Intintoli and University of Arizona professors Ji Hoon Hwang and Kathleen Kahle, who have been studying the issue.
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Researchers say they saw an increase in women directors on the boards of companies outside California, but the number of appointments by California companies was far greater.
Still, 30% of California companies need to add women to their boards to comply with the law.
Can California law survive challenges?
Critics are challenging the California law in court, arguing it's unconstitutional because it forces companies to discriminate on the basis of gender.
Closing arguments in a civil suit brought by the conservative group Judicial Watch wrapped up in a Los Angeles courtroom this week. The judge’s ruling is expected in weeks or months.
When then-Gov. Jerry Brown signed the bill into law as the #MeToo movement raged, he acknowledged it might not survive legal challenges.
The law requires public companies to have at least one woman director. Boards with five members must have two women and six members must have three or risk fines of $100,000 for a first violation and $300,000 for subsequent violations. So far, no fines have been levied.
Still, most companies are complying.
"Either firms are expecting that the law will not be overturned or they feel equal pressure to meet these director gender requirements regardless of whether the law is upheld in the courts," Intintoli said.
California put pressure on nation's companies
California played a key role in mounting pressure on corporate boards to diversify. Other states have adopted or considered similar legislation.
In August, Nasdaq instituted a new policy requiring most of the nearly 3,000 companies listed on the stock exchange to have at least one woman on their board of directors and one person from a racial minority or who identifies as gay, lesbian, bisexual, transgender, or queer. The Securities and Exchange Commission is facing a lawsuit over its approval of the Nasdaq rule.
BlackRock, State Street Global Advisors and other large investors now vote against directors on all-male boards to pressure them to add women. Goldman Sachs no longer underwrites initial public offerings for companies that don’t have at least two diverse directors.
Studies suggest that having greater diversity on corporate boards leads to better business outcomes.
At the current rate, it could take until 2045 for women to make up 50% of corporate boards, according to research from Morgan Stanley Capital International.
Women of color make fewer gains
Diversity at the highest levels of companies is closely watched in California, which is home to top technology and entertainment companies.
Adding women to corporate boards has become a social norm for most of California’s 750 public companies. Only 12 holdouts still have no female directors, according to the latest report from the women’s advocacy group California Partners Project.
While the number of women directors has increased, companies have not added racial and ethnic minorities at the same pace.
Just 3.5% of new directors added to public company boards in California were Latino or Hispanic as of June 2021, 10% were Black or African American and 18% were Asian, according to the Latino Corporate Directors Association.
Overall, Latinos held 2.5% of board seats in the state. The vast majority of the boards – 83% – had no Latino or Hispanic directors, the study found. Latinos and Hispanics make up 39.4% of California’s population and are the state’s largest ethnic group.
Some 90% of boards comply with a 2020 California law requiring boards to include directors from underrepresented groups including racial and ethnic minorities and those who are gay, lesbian, bisexual, or transgender, according to the Clemson University and University of Arizona professors. That law also faces a legal challenge.