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Opinion: Women on Boards of Directors are good for California businesses – and it’s state law



A corporate meeting room. Photo via Pixabay

Change is easier for some than for others. This is the case of Californian companies which refused to add women to their board of directors, as required by Senate Bill 826, a 2018 law that requires all state-owned companies headquartered in California to appoint women to their boards.

Although the KPMG Board of Directors Leadership Center found While 96% of all California state-owned companies had at least one woman on their board at the end of 2019, a few holdouts have filed two lawsuits challenging the constitutionality of the law, citing “gender discrimination” .

Those lawsuits were initially dismissed, but three judges from the 9th U.S. Court of Appeals moved to reinstate them in June. This move is bad news for investors, including our state’s public pension funds.

According to research by McKinsey & Company, public companies in the top quartile for gender diversity were 25% more likely to outperform median industry growth than companies in the bottom quartile. Credit Suisse Research Institute reports companies with women on their boards are more profitable, more productive and the workforce more engaged. A Morgan Stanley Capital International study found that over a five-year period, U.S. companies with three or more female directors reported 45% higher earnings per share than companies without female directors.

For shareholders, these economic benefits have long led CalPERS, CalSTRS and other institutional investors to encourage the public companies in which they invest to seek greater diversity on their boards of directors. In the 2018-19 fiscal year, pension funds contacted 85 California-based companies that were part of the Russell 3000 to ask them to diversify their boards. During this year, approximately 67 women were appointed to boards of directors. As of mid-2020, only five California companies contacted had not appointed female directors.

The adoption of diversity on the board of directors is also happening nationally. In August, the Securities and Exchange Commission approved new Nasdaq listing rules that require a publicly traded company to have at least two different directors (at least one woman and one member of an under-represented community) or the company will have to explain why it failed to do so. Companies will be required to disclose the diversity of the board of directors on an annual basis. The SEC also approved the implementation of a board recruiting services portal that will allow certain Nasdaq-listed companies to access a diverse candidate network.

But there is still work to be done.

Adopted in 2018, SB 826 requires every publicly traded company with principal executive offices in California to have at least one female on its board by the end of 2019, and a minimum of two or three female directors, depending on size. board by the end of 2021. Before the law came into force, women held only 16% of the board seats of California companies in the Russell 3000. Today, women now occupy 28% of board seats.

Progress has been made in closing the gap for women around the board table. However, nearly half of state-owned enterprises subject to the law must act to add women to their boards by the end of the year to comply, creating an opportunity for 563 women to occupy those board seats. Unfavorable court rulings would not only have a chilling effect on California’s efforts, but would also undermine the actions of other states that have introduced similar board diversity measures.

The federal lawsuit filed by an ultra-conservative militant group, Judicial watch, is expected to be heard by a district court in mid-October. A state lawsuit, filed by another conservative organization, Pacific Legal Foundation, should be taken to Los Angeles Superior Court. If successful, the lawsuits would allow the “good old boys club” to remain in place, regardless of the clear economic benefits of the law.

It is not extreme for board members and CEOs to look outside their comfort zone and expand the boundaries of their networks to seek out candidates from all walks of life and experience. Bottom line, California has hundreds of female leaders with successful business careers. They would bring value-added experience to boards – if given the opportunity.

Betty T. Yee is the Controller of the State of California. She wrote this for CalMatters, a public service journalism firm committed to explaining how the California Capitol works and why it matters.

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