When Gov. Jerry Brown signed a bill requiring publicly traded corporations based in California to have at least one woman on their board of directors by the end of 2019, he did so even though he expressed doubt that it could survive a court challenge.
In a letter accompanying his signature on Sept. 30, Brown justified his support of SB 826 by declaring that “recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message.” As the date on the letter reveals, the “recent events” to which Brown was referring were the contentious U.S. Senate Judiciary Committee hearings in which Christine Blasey Ford testified to a male-dominated panel that Supreme Court nominee Brett M. Kavanaugh sexually assaulted her when they were in high school. (Brown sent a copy of the letter to the committee.) And by “message,” Brown was presumably alluding to the continued concentration of political and corporate power in the hands of men, despite the great advances that women have made in both worlds.
The new law sends a pretty powerful message itself that California, at least, values diversity. So much so that its lawmakers are willing to enact a law that takes government coercion to an uncomfortable extreme in pursuit of that goal. Under the law, companies headquartered in California must have at least one female director by the end of this year, and those with larger boards must have as many as three by 2021. Failure to comply with the law will draw a hefty fine, equivalent to a six-figure director salary, as well as public shaming — possibly even for companies that move their headquarters to avoid hiring female directors.
There is a shocking lack of women in corporate boardrooms, even though women make or influence 70% or more of the consumer purchases in this country.
Some legal scholars agree with the governor’s assessment that the new measure is legally flawed on constitutional and other grounds. The law may be challenged as soon as this week. Or it may not be. What company relishes the publicity it would earn by complaining about how damaged it would be if it added a woman to its all male-board at this particular moment in U.S. history?
To be clear, we’re not fans of this type of government overreach, but we are troubled by the underlying problem the law seeks to address. There is a shocking lack of women in corporate boardrooms, even though women make or influence 70% or more of the consumer purchases in this country. Female directors occupy just about 18% of the seats of the boards of the U.S.’s 3,000 largest publicly traded companies. Even in liberal, gender-conscious California, one-fourth of public companies have all-male boards. The reality in executive suites is equally appalling: Only 5% of Fortune 500 companies are run by women; similarly, relatively few women hold the other top corporate posts that are the stepping stones to chief executive offices — and corporate boards.
Forward-thinking corporations shouldn’t need a law to prompt them to diversify their boardrooms. And those based in other states, especially those where Democratic legislators might be entertaining laws similar to California’s, would be wise to accelerate efforts to diversify their own boards — not just because they’re eager to avoid onerous government regulations dictating corporate board makeup, but because it is the right thing to do for both gender equality and the bottom line. Research, including a much-cited study by Credit Suisse in 2016, indicates a link between higher profits and companies with female leadership. That just makes sense. If you want to sell your product or service to women, it helps to have women guiding the decisions about what products and services to offer.
One provision of California’s law that should not be controversial requires the California secretary of state to produce annual reports tracking companies’ compliance. Even if the law is struck down, the state should continue to gather and share this information (and data on boardroom ethnic diversity as well) as a service to consumers who may well care whether the companies they patronize are committed to diversifying their leadership. When it comes to business, consumers’ disdain can be a more powerful social engineering tool than the heavy hand of government.