Seven months ago, 94 corporations had no women on their boards. As of March 25, 32 of these corporations, or 34 percent of them, have added at least one woman, in compliance with a new state law.
Under the law that went into effect January 1, in 2019 alone, 184 publicly held companies in California will have to add at least one woman to their boards of directors.
By 2021, the total number of seats added to accommodate women will be a staggering 1,060, thanks to the new law signed last year by outgoing Gov. Jerry Brown.
“Gender diversity is one key factor in creating an effective board that has a broad array of voices and viewpoints,” University of La Verne President Devorah Lieberman said in a statement. “But for women, simply having a seat on a board isn’t enough. We need to be strong, confident, and unafraid to influence decision making. At the University of La Verne, although we are not a publicly-traded company and are not subject to this law, our board has 11 women, including the president. Many of those women are our strongest and wisest voices. So for us, we see firsthand the benefits of gender and other diversity in our leadership.”
The ULV Board of Trustees has 35 members, which means that women comprise nearly a third of the board.
The law, Senate Bill 826, authored by State Senator Hannah-Beth Jackson, D-Santa Barbara, mandates that by the end of 2019, publicly held companies in California appoint at least one woman to their board of directors. The number of women appointed to corporate boards as mandated by SB-826 is not a static number, but instead is dependent on the size of the board itself. If a board has five directors, then two women must be added, and if a board has six or more, then at least three women have to be added. Sometimes complying by an initial requirement will subject the board to further requirements of the bill; for example, if a four-person board expands to include one woman, then, as a five person board, they will be required to create another seat for yet another woman.
The text of the new law does not specify whether individual board members must be replaced with women, or if boards must add extra seats. However, the number of seats given to women will increase if companies take the latter route; a board of five directors may add two seats for women, bumping up the number of directors to seven, after which the board must add another woman to comply with the requirements put on companies with six or more board members.
Past attempts at change
Betsy Berkhemer-Credaire, co-founder of Berkhemer-Clayton Inc. and board member of National Association of Women Business Owners-California (NAWBO-CA), first tried to spearhead efforts to push California into legally mandating an increase in women board directors for publicly held companies in 2013.
Publicly held corporations refers to “a corporation with outstanding shares listed on a major United States stock exchange,” according to the text of the law.
At the time, only about 14 percent of seats in publicly held companies across the United States were held by women. When Berkhemer-Credaire went to Sacramento to push for possible legislation, she said she learned that many of what she calls “old-time legislators” in California had never even met a female business owner.
Not only that, but when Berkhemer-Credaire met with Jackson, she learned through her and other legislators that they could not simply and immediately pursue a law.
“We had to have a resolution first, especially for something so historic. The resolution would simply urge companies to have more women on the board as a business issue, to improve their business and improve the economy in California.”
With input from Berkhemer-Credaire, Sen. Jackson put forward a non-binding resolution – Senate Concurrent Resolution 62 – which called for corporations to put women on their boards by December 2016. Berkhemer-Credaire said that, first, they had to see if the resolution would motivate companies to add female board members on their own. However, with no means of enforcement, the resolution failed to bring about the results Jackson and NAWBO-CA wanted.
The failure of the non-binding resolution gave ammunition to the argument that companies will not act on their own, but instead must be legally mandated into acting.
“As of the cut off date, fewer than 20 percent of the 3,000 Russell companies that were headquartered in California had that minimum number of women directors that were called for in the resolution,” Jackson said. “Clearly, asking politely didn’t work.”
Berkhemer-Credaire and Jackson drafted the bulk of SB-826, after which Jackson drew support for the bill from other members of the legislature.
Sen. Toni Atkins (D-San Diego), president pro tempore of the California Senate, signed on as a lead author, and Senator Connie Leyva (D-Chino), current chair of the Legislative Women’s Caucus, had signed onto the bill in support.
“I think that for some folks, mostly my male colleagues, they worried that this would be a form of tokenism,” Leyva said.
“My argument was, ‘We have allowed corporations forever to do the right thing and they haven’t.’ So that’s when lawmakers step in and say, ‘You know what, we’re going to make it a law then. If you can’t do the right thing on your own, we are going to make a law to make sure that you do.’”
Prior to the law
A 2012–2013 study conducted by UC Davis found that almost 45 percent of California’s companies had no female directors and that, among board directors and other high-paid executive positions, there is only one woman for every nine men.
The numbers did not improve much by the end date of that resolution. A 2017 report conducted by University of San Diego professor Annalisa Barrett found that among the publicly held companies in the Russell 3000 index, only 15.5 percent of their board directors were women, and 26 percent of those companies had no women on their boards.
Berkhemer-Credaire said that this phenomenon is in part due to the current process of choosing board members.
She wrote in her column for Santa Cruz Sentinel that board directors do not typically have term limits, and as a result, open seats are rare. She wrote that potential board directors are selected by nominating and governance committees, and are then approved by shareholder proxies.
Berkhemer-Credaire told the Campus Times that, typically, potential candidates tend to be other CEOs, due to the perception that only other CEOs have the experience required to adequately serve such a position.
“That’s traditional,” Berkhemer-Credaire said. “That excludes women without even trying to, because there are very few women chief executive officers in the country and in this state.”
“Strategies to Address Representation of Women Include Federal Disclosure Requirements,” conducted by the United States Government Accountability Office in 2015, found that among companies listed in the Standard & Poor’s 1500 stock market index, the number of board seats comprised of women jumped from eight percent to 16 percent from 1997 to 2014.
From this, the U.S. G.A.O. estimated that it could take over 40 years for the numbers of male and female board directors to match.
In addition to what Berkhemer-Credaire highlighted, the G.A.O. also noted the failure to prioritize active recruitment of diverse candidates as a factor that results in low representation of women in corporate boards.
Berkhemer-Credaire and Jackson both assert that all male boards run into multiple problems. First, companies with all-male boards are not as profitable as companies with mixed-gender boards, and second, companies with all-male boards fail to adequately represent their consumer base.
Vicki Kramer, lead researcher of “Critical Mass on Corporate Boards: Why Three Or More Women Enhance Governance,” identified another roadblock that women encounter when they find themselves serving as the only female director on a company board – women not receiving due credit for their contributions.
“When they’re the only one in a room full of men in the decision making situation, they say something, and they [the men] never heard it,” Kramer said.
“Five minutes later, some man says essentially the same thing, and they [other men] say, ‘oh, that’s really a brilliant idea.’”
Kramer, whose study was cited in the legislation, focused on the idea of the critical mass; that is, the number of women, or the percentage of women needed on a corporate board for women board directors to wield influence within the board. Her research involved interviewing women directors, 12 CEOs – nine of whom were men – and corporate secretaries.
If one woman served on a predominantly male board, she is seen by other board members as representing “woman’s point of view.”
Kramer said that if two women serve on a board, they are discouraged from collaborating with each other, out of concern that collaboration would weaken their positions in the eyes of their male counterparts.
“Which is crazy, because two men can be seen sitting together, talking together, and it’s not a problem.”
Three, it seemed, was the “tipping point.”
The problems of predominantly male boards do not solely lie in a company’s productivity; Jackson also said that such boards, at best, can contribute to the hostile work environment that the #MeToo movement actively combats, and at worst, are responsible for actively creating it.
“Think Harvey Weinstein,” Sen. Jackson said. “His company was comprised of five board members, including himself and his brother and three other men, and they were apparently all aware of his behavior and had put away substantial amounts of money in anticipation of having to pay out these lawsuits. I would submit and strongly believe that if you had women on a corporate board, they would not have allowed this kind of completely inappropriate behavior that cost this company millions of dollars to indulge this kind of inappropriate behavior by their board members and leadership.”
What women offer
Though SB-826 was put into law in the midst of the #MeToo movement, no mention of it exists anywhere in the legislation itself. Instead, the justification for the law comes from what women bring to the company.
“Generally speaking, women tend to be more collaborative in their thinking,” Jackson said.
“Women bring their life experience to the table – women tend to be the caregivers, for example. Women are 70 percent of the consumers; 70 percent of all consumer products that are purchased, are purchased by women, so we clearly bring that to the table.”
Kramer’s study found that women not only bring a more collaborative approach, but also a tendency to broaden discussions on stakeholders’ concerns.
“I think, often, the men think of the stakeholders as people like them. I think they also don’t think necessarily a bunch about stakeholders, they think about numbers,” Kramer said.
“Again and again, women on boards will tell me that men go right to the numbers and women think more broadly to include the people.”
Kramer’s research also noted a heightened willingness among women to persistently pursue difficult questions that men might avoid.
“I’ll never forget one of the men CEOs saying that he was listening to a report from one of his staff members at the board meeting, and he knew it didn’t make a lot of sense, and the only person to ask questions, to try to clarify what on earth it had been about, was the woman board member,” Kramer said. “His statement was something in the sense of ‘the men thought it was a matter of pride, to pretend they understood what was really being said.’”
McKinsey and Company, a global management consulting firm, released a 2016 study that found that companies in which women enjoy strong representation on boards or other top-level management positions enjoy higher profitability, and increases in female leadership among companies was a major factor in the increase of Western European countries’ GDPs.
Though application of this law is limited to publicly owned companies, the benefits of mixed-gender leadership can be seen in other sectors – for example, the nonprofit sector, which includes certain private universities.
Those in opposition
The opposition, led by the California Chamber of Commerce, said that the gender classification in the bill violates the U.S. Constitution, California constitution, and California civil rights law.
The equal protection clause of the 14th amendment of the U.S. Constitution, they claimed, does not allow for the type of consideration mandated in SB-826, as the clause states that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.”
Article I, Section 8 of the California constitution explicitly protects people employment discrimination on the basis of gender, race, religion, and national or ethnic origin. California civil rights code, particularly Unruh Civil Rights, Section 51 states that everyone is equally entitled to the “full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.”
Among that opposition was the North Orange County Chamber of Commerce, many of whose members also enjoy membership in CAL Chamber and opportunities to meet with legislators and lobbyists in Sacramento.
Theresa Harvey, president and CEO of NOC Chamber, said that the chamber’s opposition stems from the bill’s prioritization of an explicit gender classification over other forms of diversification, which, in her view, would make the board more representative of the companies’ clients.
Additionally, she brought up the same concerns of tokenization as did Leyva’s colleagues in the legislature.
“I know that this bill, as it’s written, could displace individuals who currently serve on boards, if they did not want to expand their corporate board in order to fulfill the requirement,” Harvey said.
“I know that I would personally rather be known as someone who was invited to serve on a board of directors because of my resume and my background rather than just because I was a woman.”
Another concern brought up by the opposition was the internal affairs doctrine, which is defined in Edgar v. Mite Corp. as “a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs.”
This means that when a corporation handles internal problems, such as voting rights of shareholders or distribution of money given to shareholders from a company’s profits or reserves, that company follows the laws of the state in which it was incorporated. Incorporating is the process in which a company is recognized as a legal entity separate from its shareholders.
Joseph Grundfest, professor of law and business at Stanford Law School and former commissioner of the United States Securities and Exchange Commission, wrote in a paper for Stanford Law Rock Center for Corporate Governance that the internal affairs doctrine would restrict the application of SB-826 to 72 corporations headquartered in California.
Note that a corporation being headquartered in California is not the same as a corporation being incorporated in California. A corporation may have its principal executive office in California, meaning that California is where the partnership primarily does its business, but may have been incorporated in another state.
Now that the bill is law, the groups that previously opposed SB-826 have changed their approach.
“The bill is now law,” said Denise Davis, CALChamber vice president and spokesperson.
“As such, we are now working to educate our members on complying with the mandate.”
Aryn Plax can be reached at firstname.lastname@example.org.