Will California’s Proposed Legislation Solve The Board Diversity Puzzle?

diversityWith California legislators moving closer to approving a bill that would require public company boards to have at least one female director, the question now are is whether such a law is necessary, as boards have already begun fast-tracking diversity initiatives in the wake of BlackRock CEO Larry Fink’s letter to CEOs advocating diversity earlier this year.

“I think that there has been some very good progress in 2018—a third of new directors have been women, so I think anybody would rather see it done through awareness of the need versus quotas,” TK Kerstetter, CEO of Board Resources LLC, and editor at large of Corporate Board Member says. “I think there are a lot of people that are not in favor of quotas in the U.S., but I think the California law is going to go through and there is the possibility of some other states doing it.”

The sea change toward board diversity has been slow moving in the U.S., and several European countries have enacted regulations requiring more women on corporate boards, but Fink’s letter and pressure from other investors has had a profound effect on how boards are filling empty seats in 2018. According to the Equilar Gender Diversity Index, in Q2 2018 a total of 35% of all new director appointments were women, a figure that was up from 32% in the first quarter.

“Boards are doing this on their own [in 2018] because State Street and BlackRock are really putting the heat on. I’d rather see it that way than through some kind of quota system,” Kerstetter told Corporate Board Member. “It’s a sensitive topic, but globally this is nothing new, and there are plenty of countries that have gone this route. But I don’t think that necessarily makes it the right way to do things. I would hope that this is done through awareness and understanding of why it’s a good thing as opposed to having it mandated.”

While California’s proposed legislation still has hurdles to clear before becoming law—the bill would need to be approved by the state Senate and signed by Gov. Jerry Brown—Kerstetter believes that boards shouldn’t need new laws to inspire them to broaden their thinking when it comes to appointing new directors.

“I’m hoping for the day when we don’t have to define someone as a minority director or a woman director and that we can just define them as a corporate director, and the people who are serving on the board are there because they are the right person for the job with the right skillsets and we don’t have to worry about color or gender. Unfortunately I think that’s a long way off, but that should be our hope.”