Fifteen months ago, Gov. Jerry Brown signed Senate Bill 826 into law, which requires publicly-held corporations headquartered in California to have at least one woman on its board of directors by the end of 2019.
It was a historic and long-overdue measure. Women comprise half the U.S. workforce and are the sole or co-breadwinner in half of American families with children. Yet only 22 percent of directors at Fortune 500 are women. One-quarter of California’s publicly traded companies have not one woman on their boards.
By requiring publicly traded companies with headquarters in California to have at least one woman on their boards by the end of 2019 and two women on boards of five—or three women on boards of six or more—by the end of 2021, SB 826 would have helped to equalize gender representation. And what could be controversial about equality?
Apparently, quite a bit.
Not even a year after the bill was signed into law, an activist group filed a lawsuit to enjoin the California Secretary of State from using taxpayer funds and resources to enforce or implement the law. The suit claims the law violates the Constitution by “mandating sex discrimination” through gender-based quotas. And a few weeks ago, a second legal challenge was filed, this time in federal court. The shareholder lawsuit similarly claims the mandate violates the equal protection clause because it discriminates on the basis of sex.
Constitutional challenges are risks that Governor Brown recognized when he signed the bill into law. But the suits seem to suggest the law is unnecessary, with the Pacific Legal Foundation saying, “This law is built on the condescending belief that women aren’t capable of getting into the boardroom unless the government opens the door for them. Women are capable of earning a spot on corporate boards without the government coercing businesses to hire them.”
The abysmal representation of women on boards are irrefutable. The lawsuits miss the point: it’s not whether women are capable—they clearly are—but whether they have the opportunity to earn that spot.
In a perfect world, SB 826 would be unnecessary. Unfortunately, while the 20th century saw a radical increase in the number of women participating in the labor force, there is still not parity in the c-suite and to highest roles in business governance. A 2019 Korn Ferry study found about 25 percent of the c-suite leaders are women, and only six percent of women serve as chief executive officers (CEOs). And recent research from Harvard shows that it’s a cyclical problem: board experience helps more women get CEO jobs. Therefore, it is essential to facilitate high-potential executive women in securing corporate board seats.
Regrettably, many U.S. board directors are what the Financial Times referred to as “male, stale and frail.” Competition for board seats is intense because open seats are uncommon; most companies allow directors to serve as long as they desire and can contribute. Moreover, when board seats do become available, they are typically filled through networks of existing board members. A conscious effort to intentionally diversify board membership is the exception rather than the rule.
In Canada, progress has been slow as well. According to Deborah Rosati, founder and CEO of Canadian-based Women Get on Board, awareness and support are high, but it comes down to board renewal: if there are no age limits or term limits in place, there will be limited seats available for more women to join.
That’s too bad. Diversity makes institutions, including businesses, stronger. A diverse board forces companies and industries to expand their views and perspectives. These values then trickle down through the organization, strengthening its ability to innovate and provide goods and services to an increasingly diverse public. And research has also proven that U.S. companies with three or more female directors reported a median change in return on equity (ROE) of 10 percentage points and in earnings per share (EPS) of +37% over a five-year period.
At the Center for Women in Leadership at Pepperdine Graziadio Business School, we prepare more women to take on successful leadership roles by providing support, education and training to develop the frameworks to advance to higher levels of leadership, start a business and serve on corporate boards. Ultimately, this will equalize the executive gender equity and opportunity will also be equalized—but we aren’t there yet. The lawsuits ignore the institutional reasons why the enactment of SB 826 is so important.
In March 2020, the California Secretary of State will release its report on how California’s public companies are complying with the new law. Those that have met or exceeded the benchmark should be recognized. Those not in compliance should keep in mind that social media makes it much easier to publicize companies that refuse to diversify their boards—and those that support the lawsuits against SB 826.
Bottom line: The goal of SB 826 is gender equality. Why are so many companies still so afraid of this?