What Should Boards Make of the California Law Requiring The Appointment of More Women? 5 Steps to Consider

By: Bonnie Gwin

When California Governor Jerry Brown signed his state’s Senate Bill 826 into law in September, even he conceded that the bill might have flaws. The law specifies that by the end of 2019 all publicly held domestic or foreign corporations whose principal executive offices are located in California must have at least one female director on their boards. By the end of 2021 they must have a minimum of three female directors if the board has six or more members, at least two female directors if the board has five members, and at least one female director if the number of directors is four or fewer.

The law could be challenged in court on a number of grounds, as Governor Brown acknowledged. But if you’re hoping his pessimism will be proved prophetic, you might want to reconsider.

Companies that wait for the courts to overturn the California law may win the battle but they will lose a much bigger war on two fronts—competitiveness and reputation. Companies that remain complacent because they are beyond the reach of the California law will fare no better. Legal immunity will not grant exception from the attention that will increasingly dog those who drag their feet, as it has in the UK with the “Women on Boards” initiative spearheaded by Lord Mervyn Davies.

Whether you believe in quotas or not, the California law is based on what has become a well demonstrated truth: companies with women on their boards outperform companies with all-male boards. In fact, the preamble to Bill 826 cites no fewer than six independent studies, including research by Credit Suisse and McKinsey, that support that conclusion.

A number of leading companies have already stepped up their efforts to recruit women – proactively. Meanwhile, investors continue to call for more women on boards. A recent addition to this chorus of investors is the New York State Common Retirement Fund. They announced in March that they would vote against all board directors standing for re-election at companies that have no women on their boards. Where a company has only one woman on the board, the state pension fund plans to vote against members of the governance committee.

Despite a record number of independent seats on Fortune 500 boards going to women in 2017, progress remains slow—even at that pace women will not reach parity with men in new appointments until 2025. Twelve companies on the Fortune 500 have no women whatsoever on their boards. Even among the remaining 488 companies on the list, only three as of March 31 have actually achieved gender parity on their boards. In California, 117 of the 446 public companies in the Russell 3000 index headquartered in the state have no women on their boards.

Moving Forward: Instead of waiting to see how the California law plays out, boards inside and outside the state have a great opportunity to seize this moment.

Here are some simple steps boards can take to do so:

1. Lead, don’t follow. Companies that act quickly will not only reap the business advantages of board diversity sooner rather than later but also set the gold standard among their peers and send a strong message to their clients/customers and their employees – that diversity matters.
2. Drive board diversity from the top. Although execution falls on the Nominating Committee, the push for gender diversity must also come from the Chair or a strong Lead Director or CEO who keeps it front and center. Without strong support from one or more key members of the board, efforts to add diversity can often get sidelined.
3. Look beyond the usual candidate pool. The ideal candidate does not have to be a CEO. Consider GMs, division heads, presidents of universities, retired public servants who have led large government agencies, and retired career military officers who have led complex commands. Consider also functional leaders whose expertise is relevant to a key area of your company’s strategy or entrepreneurs who have scaled a business. Earlier in career executives often bring sharp new insights into the boardroom, especially on technology and industry disruption. 
4. Develop a game plan. The most effective boards build a recruiting plan and methodically tackle it. Often they get to know candidates BEFORE they can take a board role – investing in and developing a relationship. They think creatively about their most strategic needs. They ask major organizations like ELC and Catalyst for ideas.   And they execute a disciplined recruiting strategy.
5. Stay the course. It is hard work to build a board. Recruiting the right person takes time. Insist on being presented a diverse slate that includes women. And think about building a pipeline of ideas, not just recruiting one person today but if you identify several great candidates, consider adding them sooner than you might have planned. Keep up the focus on identifying exceptional diverse candidates, even if you are not in active recruiting mode. 

In the case of Bill 826, the Golden State may not be a bellwether in terms of legislation, but the drive to put more women on boards is only going to intensify no matter what legislatures or the courts do. It is an opportunity for boards to ‘carpe diem’.

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