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Will More States Set Board Diversity Mandates?

January 13, 2022 (8 min read)

When then-Gov. Jerry Brown signed SB 826 in 2018, it made California the only state to require corporate boards to have a minimum number of women directors.

Almost four years later, California is still mostly going it alone – only Washington has adopted a similar mandate, which went into effect on January 1 – although lawmakers in at least a dozen states have continued to push for greater board diversity. 

If data from recent reports is any indicator, they might want to push a little harder.

Gains for Women on CA Corporate Boards Far Exceed Average

Women have slowly been making inroads onto corporate boards in recent years, but at a pace nobody will confuse with a Formula One car.

According to a study released in 2021 by ISS Corporation, a corporate governance consulting firm, the total number of women on corporate boards grew to 27 percent in 2021, only a slight uptick from the previous mark of 24 percent.

Meanwhile, the advances in California have been far more significant.

According to the California Partners Project, co-founded by First Lady Jennifer Siebel Newsom, female membership on corporate boards in the Golden State rose from 15.5 percent in 2018 to 29.6 percent today. Just over half of the new board seats at publicly traded California companies went to women in 2021. And the total number of women on boards at public companies headquartered in California more than doubled between June 30, 2018 and September 30, 2021. 

In a statement, Siebel lauded those advances, saying “All-male boards are essentially a thing of the past among California’s public companies.”

Siebel said that while such change is important on the social front, the real argument is on the business side of the equation. 

“More women on corporate boards translates to better decision-making, greater creativity and productivity, and a better bottom line. Companies with diverse boards simply perform better,” she said.

California lawmakers did not stop there, passing AB 979 in 2020, a bill that requires companies headquartered in the Golden State to have put at least one board member from an underrepresented community in place by the end of last year and for larger boards to have two to three by the end of 2022.

The law defines someone from an underrepresented community as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native; or who self-identifies as gay, lesbian, bisexual or transgender.”

Violators of either California measure face steep fines, ranging from $100,000 to $300,000 per violation.

Women, Minorities Still Face Hurdles to Board Equity

While women in general are now gaining more entrée to corporate boardrooms, that access has not been broadly distributed across cultural lines. And the overall number of women on boards is still a fraction of their white male colleagues.

According to a survey by Deloitte and the Alliance for Board Diversity, women hold only about a fifth of all board seats nationwide. The opportunities have been particularly meager for women of color, who hold only 7 percent of Fortune 100 board seats and 6 percent of Fortune 500 positions. Even after all the gains made in California, the California Partners Project report notes that women of color there only hold 6.6 percent of public board seats.

Conversely, White women fared well, seeing a 15 percent increase in board representation since 2019 at Fortune 100 companies (a gain of 34 seats) and a 21 percent increase at Fortune 500 companies (209 seats). And in direct contrast with California, over half of all the available board seats last year were filled with White men.

Things have been substantially better for Black men. According to the ISS study, they saw their representation jump by nearly 200 percent in 2020, representing 32 percent of all new directors, three times the number from 2019.

Even so, there tends to be an overlap that skews the actual level of participation by those groups. According to the Deloitte study, 36 percent of diverse board positions are held by people who sit on multiple Fortune 500 boards, most notably among Black directors. According to the study, two out of every five seats occupied by Black board members were held by a person serving on multiple Fortune 500 boards.

Board Diversity Measures Growing Across the States

There is growing interest across statehouses to use legislation to increase board diversity, but the methods and enforcement vary.

The Washington law, for example, requires boards to have at least 25 percent of their makeup be members who self-identify as women. But unlike California, violators face no fiscal penalties, only the requirement that they publicly disclose the criteria they use to choose board members.

Three other states – Maryland, New York and Illinois – require boards to disclose their demographic makeup. A handful of others – Massachusetts, Hawaii, Connecticut, Michigan, New Jersey and Oregon – have considered or are considering mandatory disclosure measures. Ohio encourages, but does not require, disclosure.

The Nasdaq has also adopted a rule requiring it’s more than 3,300 listed companies to disclose their board demographics and for those without any self-identified women or minorities to explain why not. Similar policies have been coming fast and furious from a number of other investment firms and oversight agencies, including the Securities Exchange Commission, Goldman Sachs and Institutional Shareholder Services, Inc. (ISS).

As Diversity Efforts Grow, So Do Efforts to Stop Them

These changes are being driven by a number of factors, from social advocacy groups to institutional investors and even the employees themselves. But not everyone thinks legislative mandates are the way to go.

In California, both SB 826 and AB 979 are being challenged in court by conservative advocacy groups, which claim the laws are unconstitutional. They are also suing to overturn the SEC’s approval of the Nasdaq board gender diversity policy.

In a statement, conservative legal activist Edward Blum, who runs both Judicial Watch and the Alliance for Fair Board Recruitment, called the Nasdaq rules “unfair and illegal” and said they should be “struck down by the courts without delay.” In December, a group of 17 state attorneys general, all Republicans, filed a brief in support of the suit.

Afra Afsharipour, a professor at the University of California, Davis law school who specializes in gender issues in the workplace, says regardless of what happens with the litigation, the law has already established a momentum in California that will not be easily stopped.

“There’s been such a significant increase in the number of women on boards of companies headquartered here, the statute has already done what it was intended to do,” she says, noting data collected by groups like Siebel’s.

But that does not mean the laws being overturned would not be problematic for diversity supporters elsewhere.

“It is possible the laws being overturned could have a chilling effect on what happens with the Nasdaq litigation,” she says.

She further notes that CA SB 826 came amidst intense pressure from large institutional investors like Goldman Sachs who said they wouldn’t vote for a board slate unless there were women on that board. The laws being overturned could ease some of that pressure on all but the very largest companies.

“I think for those companies, the ship has already sailed,” she says. “But there are a lot of companies that are not Apple that are still publicly traded.”

The pressure could also conceivably be off for privately held companies, which are currently not subject to the law but which are also facing calls to be more diverse.

“If the legislation fails, you may have some people feel they don’t have to think about diversity as much,” she says.

Board Diversity Not a Pipeline Problem

In court testimony last December, former California state Sen. Hannah-Beth Jackson, a Democrat who authored SB 826, testified that her bill was a direct response to the slow pace of advancement for women seeking board positions. Jackson cited efforts by the Legislature and many colleges and universities around the country to create lists of qualified female board candidates, lists she says were too often ignored in favor of white male candidates.

Her testimony is typical of many advocates who decry the longstanding mantra that the lack of women on boards is due to a shortage of qualified candidates for those positions.

“I don’t believe there’s a supply problem as much as I believe there’s a demand problem,” says Elissa Sangster, CEO of the Austin, Texas-based nonprofit Forte Foundation, which advocates for women’s advancement in the corporate workplace.

She says that while they are part of a broad coalition of groups with a similar goal, just pointing corporate leaders toward a database of qualified female board candidates is not enough on its own.

“It’s hard to level set a hundred years of business leadership history by just showing a database,” she says.

In her view, moving the needle will require a number of efforts, including guiding more young women into the business world - and into MBA programs in particular – and by developing partnerships with male supporters who will become allies.

Sangster says advocates should also focus energy on improving women’s access to the top corporate leadership positions, which for years were stepping stones to a board position.

“Companies need to be asking themselves if they are monitoring and identifying talent and moving everybody up equally,” she says. “Because what studies show us is that in these first managerial roles, men keep getting promoted over women and more diverse candidates, and it just keeps progressing and getting worse and worse as you go up the line.”



Employment Diversity Gets Attention from State Lawmakers in 2021-2022

At least a dozen states have considered – and more than half of them have enacted – legislation dealing with diversity and inclusion in the workplace in the 2021-2022 biennium, according to State Net’s legislative tracking system. The measures include an enactment in California (SB 655) encouraging diversity in insurer investments and introductions in Massachusetts (SB 1814) and New York (AB 1795) concerning corporate board diversity and board diversity disclosure, respectively. 


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