Leadership

What California’s New Diversity Law Says About Boards

By / Oct 3, 2018 (PeopleImages/iStock/Getty Images Plus)

California’s just-passed law requiring women to have a place on the boards of public companies reflects wide interest in seeing added diversity in boardrooms, including in nonprofits. However, the law itself could face a tough road ahead due to questions about its constitutionality.

A new California law targeting publicly traded companies based in the state will make it imperative that women are represented on corporate boards.

But while the law doesn’t specifically target nonprofits, it could encourage a shift in boardrooms in general. The rule, which requires public companies to have a female board member by the end of 2019 and would eventually require five-member boards to have two women and six-member boards to have three women, could have a significant impact. The state currently has 445 publicly traded companies, according to KQED—and a quarter of those companies don’t have a single woman on their board.

The law has wide support statewide: 71 percent of Californians said they supported the law, according to a recent survey by TheBoardlist—a number that jumps to 80 percent among women. And 95 percent of respondents said they felt public companies weren’t doing enough to add female board members.

However, while initiatives to diversify boards have picked up in recent years and there is a general interest in closing the gender gap on corporate boards, the more stringent legal requirement put forth in California is facing pushback from the business community, and there is a belief that the aggressive approach could lead to immediate lawsuits.

“This bill basically mandates that we hire the woman above anybody else who we may be fulfilling for purposes of diversity,” explained Jennifer Barrera, senior vice president of policy at the California Chamber of Commerce, in comments to KQED.

Andrew Ross Sorkin, the well-known business journalist who co-created the popular TV series Billions, noted in a recent column that the quota-style approach to solving the problem of board representation may lead to the law being found unconstitutional. Additionally, he noted that since many businesses are incorporated in Delaware and other states, the law may not actually apply to the companies being targeted.

“While California’s impulse is clearly on the right side of history, the way the rule was enacted is so misguided that it might do more harm than good,” Sorkin wrote in a New York Times analysis. “Worst of all, an onslaught of lawsuits challenging the rule could set back the meaningful progress that has been made—and hopefully will be made—in bringing more diversity to boardrooms.”

There are supporters of the bill, however. The California arm of the National Association of Women Business Owners said it would open up opportunities to its members.

“We are confident this law will be the catalyst for greater prosperity via the brainpower and contributions brought by the unique, valuable perspective of women,” the group’s president, Mindy Bortness, said in a news release.

Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. More »

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