Over the last few years, many corporate boards have talked about adding more women. The state of California, however, is trying to force the issue.
Over the weekend, the state passed a law requiring that publicly traded corporations headquartered in California include at least one woman on their boards by the end of 2019. By the middle of 2021, a minimum of two women must sit on boards with five members, and 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.
Experts say that adding women to both senior executive and corporate boards can lead to better business outcomes, including smarter business decisions, fewer scandals, and higher employee retention. “People would prefer that you wouldn’t have to mandate. But in reality, it’s not moving fast,” says Tierney Remick, vice chairman and co-leader of Korn Ferry’s Board and CEO Services practice. Nearly 18% of the Russell 3000 group of large publicly traded firms have all-male boards, according to data research firm Equilar, and several hundred of them are headquartered in California.
But while ensuring that women have a seat at the boardroom table is important, experts say a mandate runs the risk of overshadowing the reason why a business would want more than just all white males on the board. A board will become more effective if its members recognize, and seek out, the benefits of hearing from leaders of different perspectives, backgrounds, and, yes, genders. “Boards need to embrace a culture of diversity and inclusion, not just check off a box,” says Jane Stevenson, Korn Ferry’s global leader for CEO Succession and a vice chairman of the firm’s Board and CEO Services practice.
The law probably will face court challenges; California’s governor, Jerry Brown, admitted that the legislation has flaws that could keep it from ever being implemented. Nevertheless, Brown said that forcing the issue of gender representation on boards was necessary. “Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America,” Brown wrote in a message when he signed the legislation.
While California may be the first state to enact this type of legislation, it’s by no means the first government body. Indeed, a similar law has been on the books in Norway since 2003. Spain, the Netherlands, France, Italy, and Germany also have laws demanding female representation on corporate boards. From a sheer numbers perspective, those laws have worked; female representation on boards in those countries has risen considerably. As of 2017, women had close to 22% of EU corporate board seats, while in the United States it was closer to 20%.
That California is the first state to mandate having a woman leader on a company’s board is not without irony, Stevenson says. The Golden State is home to two industries, entertainment and technology, which aren’t historically known for promoting women leaders.