By Sarah Alter, NEW President and CEO
“Pressure to increase gender diversity at the top is on the rise.”
Last fall, California became the first state to pass a law requiring publicly traded corporations to add women to their boards. Hmm, “All male? Go to jail.” Not quite.
The state law requires publicly traded companies headquartered in California to appoint at least one woman to their boards by the end of this year. By the end of 2021, a minimum of two women must sit on boards with five members. There must be at least three women on boards with six or more members. Companies that fail to comply face fines between $100,000 and $300,000.
“People would prefer that you wouldn’t have to mandate,” Tierney Remick, vice chairman and co-leader of Korn Ferry’s Board and CEO Services practice said at the time the law passed. “But in reality, [progress is] not moving fast.”
As counted just before the law passed, 377 California companies tracked by the Russell 3000 Index (the largest U.S. stock-traded companies) must add at least one woman to their boards to comply with the law, according to Board Governance Research LLC. In total, nearly 700 women must be seated in the next three years.
These figures don’t reflect the scarcity of women on boards of smaller public companies headquartered in the state, many of which are likely to have all-male boards, Board of Governance Research CEO Annalisa Barrett told The Associated Press. “Smaller companies haven’t had as much pressure on them to take advantage of the benefits of having a diversified board,” she noted.
What does it say about deeply entrenched bias in corporate America that the threat of a $300,000 penalty will do more to move the needle on gender equality than the myriad proven competitive and bottom-line benefits associated with women’s leadership? Scores of studies have shown the business benefits of greater representation of women at the most senior levels. Gender diversity and inclusion bring better decision-making, higher returns on investment, improved efficiency, and lower turnover.
One report, by Lehigh University’s Corinne Post and Georgia State University’s Kris Byron, found that women tend to think more broadly and holistically and companies with women board members are more socially responsible. When that type of thinking is brought to the boardroom, decision-making implications for employees and the communities where companies do business are more likely to be given a voice.
Women’s preparedness — fueled by feelings that their qualifications may be questioned — has an effect on male board members, Post told Forbes.com. “When women participate on boards, the attendance of male directors goes up too,” she said. “There might be some type of contagion effect where if women come better prepared, then everybody starts preparing better. That can help in making better decisions overall.”
Pressure for progress
At the current rate of progress, though, true equality at the senior level is decades away. The glacial movement is caused, in part, by the many men and women who are satisfied with so little progress. Nearly half the men and a third of the women surveyed for McKinsey’s Women in the Workplace 2018 study believe women are well represented at the senior level when they fill just one in 10 roles.
Even so, the California law comes at a time when public, shareholder and institutional investor pressure to increase gender diversity at the top is on the rise. Other states — including Illinois, Massachusetts, Pennsylvania, Ohio and Colorado — have issued resolutions encouraging gender diversity on corporate boards.
More than 80 percent of institutional investors surveyed by the EY Center for Board Matters reported board composition, with a focus on diversity, would be a top priority last year. “This may include gender, race and ethnicity, age, nationality and geography, socio-economic backgrounds or other forms of diversity, but gender was most commonly cited, partly due to the lack of consistent disclosure on any other characteristic,” EY reported.
In February 2018, BlackRock Inc., the world’s largest asset manager, announced it wanted its portfolio companies to have diverse boards, noting “we would normally expect to see at least two women directors on every board.” The firm also asked some 300 companies in the Russell 1000 that have fewer than two women on their boards to disclose their approach to boardroom and employee diversity.
Still, California’s law has been opposed by nearly three dozen business groups and will most certainly be challenged in court, likely by the California Chamber of Commerce.
But if it takes a state mandate and fine to break down barriers and move toward gender equality, I say, “One down, 49 to go.”