3 Reasons Why California's Law Requiring More Women on Boards is a Winner-Even If It Fails

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3 Reasons Why California's Law Requiring More Women on Boards is a Winner-Even If It Fails

California Gov. Jerry Brown recently signed California Senate Bill 826, requiring California-based publicly held companies to have a minimum of one woman on their boards of directors by the end of 2019. By the end of July 2021, companies with five or fewer board members must have a minimum of two women on their boards, and companies with six or more board members must have at least three women on their boards. The law imposes fines of $100,000 for the first violation and $300,000 for subsequent violations. The law – which would require nearly 700 women to fill board seats for the 3,000 largest publicly traded U.S. companies – is unlikely to survive legal challenges.

Regardless, there are at least three reasons for looking at the passage of this law as a big win:

  1. Eyes are opening. This law highlights the fact that women continue to be under-represented at the C-level and on boards of publicly traded companies. According to Catalyst, a nonprofit focused on promoting women in business, (i) there are 12 Fortune 500 companies with no women on their boards, (ii) women make up only 20% of S&P 500 board seats, and (iii) the number of women Fortune 500 CEOs dropped by 25% this year. It appears women’s progress has not simply stagnated, but is backsliding. This law demonstrates that people are at least paying attention.
  1. Laws influence behavior. In 2016, the Government Accountability Office estimated that it will take 40 years for women in S&P 1500 companies to reach parity with men. When people argue that the market will eventually force the changes that best affect the marketplace, they ignore the fact that men control the market. If we wait for the market to figure it out, most of today’s executive women and workforce will be retired, or gone. Research has shown that although increased female board representation increases corporate profit margins, it has not been enough to offset both implicit biases and male board members’ unfounded fears that increased female representation will lead to negative effects. A legal nudge in the right direction is necessary.
  1. Immediate impact. Until a court rules otherwise, it is the law and will be enforced as such. That means time is on the law’s side: companies based in California will have to take some steps towards compliance rather soon, especially to meet the 2019 deadline. Given the slow pace of progress women have experienced thus far, the law could have a significant impact in a short period of time.

We have been hearing for years how diversity correlates with a stronger bottom line, yet the message has not resonated to the point where progress has accelerated. Whether you agree or disagree with California’s method of addressing this issue, relying on the market to address inequity has not been an effective approach.