Will California’s legislation mandating more women on public company boards move the diversity needle?
Senate Bill 826, which then-Gov. Jerry Brown signed into law in last fall, requires publicly held corporations with principal executive offices in California to have at least one woman board member by year-end. By Dec. 31, 2021, companies with five directors must have a minimum of two women, and those with at least six directors, a minimum of three.
The goals are lofty, including to “boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees.” The bill cites studies suggesting that companies with women on boards generate higher profitability, productivity, and workforce engagement.
The penalties are in sync with the #MeToo “name and shame” culture; California will publish annually the names of compliant and non-compliant companies. Fines are $100,000 for the first violation and $300,000 for subsequent violations (and potential shareholder actions for management’s compliance failures). The California Chamber of Commerce and a coalition of businesses argued that the mandate is unconstitutional, but no lawsuits have been filed.
California’s approach has more teeth than anything to date in this country. Although the SEC’s amended Regulation S-K created reporting requirements for various mandatory “diversity” related filings, it was generally regarded as too vague to achieve much. Legislation in Illinois and Massachusetts urged progress but failed to set requirements.
How many women are currently on California boards? Estimates vary. The bill states that almost half the 75 largest IPOs from 2014 to 2016 involved no female director. Commentators report there are approximately 100 all-male California public company boards.
Does this legislation have a shot at achieving its lofty goals? Studies suggest it might. Mixed gender groups simply make better decisions. They are better able to tap into the group’s collective intelligence. The work of Anita Williams Woolley at Carnegie Mellon University, a leading researcher on this question, indicates that the most important predictor of a group’s collective intelligence is its social sensitivity. Teams generating the best solutions have members who can accurately read the non-verbal cues of their colleagues. They benefit from members who tune into both group dynamics and the substantive issues. And it turns out women bring those skills to the table. The best group decision-making correlates less with individual intelligence, more with the proportion of female members.
Having been the only woman on a board, I agree. Many highly-accomplished men excel at reading social cues and being inclusive. But, as I have written elsewhere, women are raised to be especially conscious of how we connect with others. The societal push for women to be accepted often creates enormously valuable EQ.
But the year-end deadline is fast approaching. Companies without a female director will need to identify, vet, and attend to corporate requirements for disclosing nominees. Recruiters may need to move beyond the traditional candidate pool where the percentage of women is smaller. Fortunately, experienced board members exist beyond the Fortune 500. Women partners in venture capital firms often have board experience coupled with domain expertise. Silicon Valley and other tech centers are full of talented candidates like Dayna Grayson at NEA, Beth Seidenberg at Kleiner Perkins, Aileen Lee at Cowboy Ventures, Trae Vasallo at Defy, Mary Meeker at Bond, Katie Haun at Andreessen, and many more. Accounting firms are another source of talent. At Deloitte, for example, more than 20 percent of public company audits are led by women partners.
The legislation’s implementation won’t be without challenges. But the rewards could extend far beyond gender equity – delivering better, balanced corporate decision making at a time when business is playing a greater leadership role in society. And that should generate positive input from everyone at the table.
Lynne Hermle, a Silicon Valley-based partner with Orrick, Herrington & Sutcliffe, regularly represents major companies in employment matters.