As a result of state law, more women are joining corporate boards in California.
getty
As a result of a 2018 state law, California has dramatically increased the number of women on its corporate boards. California Senate Bill 826 requires each publicly held company in California to have at least one woman on its board of directors for boards with fewer than five members, at least two women for five-member boards, and three female directors on boards of six or more by the end of 2021. As we near the deadline, here’s what we can expect from this influx of women into powerful corporate roles.
The good news is that California has already seen some dramatic results in the gender balance in the boardroom. In the two years prior to 2018, only 208 women were selected to fill vacant corporate board seats in California according to the California Partners Project. In the two years since the passage of the bill, that number grew to 739. In the first quarter of 2021, women filled nearly half (45%) of the public company board appointments in California. Since California companies that don’t comply will be required to pay hundreds of thousands of dollars in fines, it’s not surprising that the bill was effective in increasing the number of women on corporate boards.
Will The Influx Of Women Help Create Other Diversity In The Boardroom?
The large majority of new female board members in California are white, so clearly more work is needed to increase diversity. In fact, women now hold 26.5% of California’s public company board seats, but only 6.6% of board seats are held by women of color. This is despite the fact that women of color make up 32% of California’s population. Latinas make up more than 19% of California’s population, yet hold only 1% of the seats on California’s public company boards.
These statistics will likely improve soon. Under another new bill signed last year by Gavin Newsom, Assembly Bill 979, publicly held corporations headquartered in California are required to have at least one director from an underrepresented community by the close of 2021. Those who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identify as gay, lesbian, bisexual or transgender are considered to be from an underrepresented community. By the end of 2022, corporate boards with four to nine members must have two directors from underrepresented communities, and those with more than nine members must have at least three from those communities.
Do Female Board Members Lead To Increased Corporate Profits?
Some highly publicized research has suggested that women’s mere presence on the board has an incredible impact on corporate profits. One study of large U.K. companies concluded that those firms with boards that are one-third female are a whopping ten times more profitable on average than those with all-male boards. A Catalyst study indicates that those companies with the most women on their boards had a 60% higher return on investment than the companies with the fewest women on their boards.
Despite these findings, it is unlikely that California companies adding women to meet quota targets will see an improvement to their bottom line. Instead, the association between higher profits and female board members is likely due to a third variable. That is, there is a likely another factor like more innovative leadership strategies that positively impact both the selection of female board members and corporate profits. When companies are not choosing to add female board members, but are forced to add women to the board, this effect will likely disappear.
Do Female Board Members Lead To More Focus On Corporate Social Responsibility?
Some researchers have found a link between the number of female board members and a company’s interest in issues of social responsibility. It may be that women bring more attention to these issues, but it also may be that companies that are more socially responsible are also more likely to select female board members. Only time will tell if more women on boards in California will increase the focus on corporate social responsibility.
Do Female Board Members Enhance Board Productivity By Bringing A Fresh Perspective?
“I bring a perspective that no one else has. We all learn from each other and that makes for excellent outcomes and stronger company leadership,” Nanxi Liu, a board member of two companies, told the California Partners Project. While it certainly makes sense that differing perspectives add value, Alice Eagly, professor emeritus of psychology and management at Northwestern, has written that it doesn’t always work that way. She explains that social processes can get in the way of diversity’s potential. Men and women have different levels of status in our society, and these status differences likely create issues when men and women are forced to work together. A large analysis of 146 studies on diversity in groups found no advantage to gender diversity.
Do Female Board Members Boost Other Women Up The Corporate Ladder?
Once again, we don’t know how the surge of women into corporate boardrooms in California might help other women climb the corporate ladder. However, we can tap into research from Western Europe where many countries have implemented board quotas. Norway, for example, ruled in 2003 that 40% of board seats must be held by women. Prior to this legislation, women represented only 9% of directors in Norway, and post-legislation, women represented 44.2% of corporate boards. Disappointingly, the increase in female board members was not associated with more female CEOs or more women in top management in Norway. By 2014, eleven years after the quota was imposed, none of Norway’s 32-large cap companies had a female chief executive and less than 6% of general managers at Norway’s listed companies were female.
In France, Germany and the Netherlands, the percentage of senior management jobs held by women did not increase significantly after the quotas were instituted. The gender pay gap didn’t significantly decrease either.
The real benefit of SB826 is that it was successful in including more women on corporate boards, which is no small feat. Jerry Brown wrote upon signing the bill, “it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.” At least in California, now they do.
