The patriarchy was not about to take this one sitting down.
In 2018, then-Gov. Jerry Brown signed a bill into law making it a requirement that all publicly held California corporations put women on their boards of directors.
The arithmetic was simple: By the end of 2019, all boards were to have at least one female director. By the end of 2021, boards with six or more directors were to have at least three female directors. Boards with five directors were to have two. Hefty fines would be levied on noncompliant companies.
The law has proved to be a stunning success. I could slam you with all kinds of statistics, but suffice to say that in 2018, the year before it took effect, women held only 15.5% of director seats on the boards of publicly held corporations in California. By 2021, they held 32% of board seats. Today, 99% of the companies affected by the law have at least one woman on their board. Some have two or three.
But just as California was blazing a trail for the rest of the country, the old guard objected. Right-wing legal groups decried what one called “the woman quota law” and argued it violates the California Constitution’s equal protection clause. “The government should not force people to put a job candidate’s sex above his or her individual traits,” declared the Pacific Legal Foundation. “Any law that puts equal numbers above equal treatment undermines the very concept of equality.”
Haven’t we learned, though, over the course of American history that equal numbers result in equal treatment?
Unfortunately, Los Angeles County Superior Court Judge Maureen Duffy-Lewis, who was appointed in 1987 by Republican Gov. George Deukmejian, agreed with the law’s opponents. So did my colleague Nick Goldberg, who, while lauding the law’s goal, wrote last week that he found it “too intrusive.”
(A related law requiring boards of public corporations to increase the number of directors from “underrepresented” racial and ethnic groups by the end of this year was tossed by a different Los Angeles judge last month.)
In her May 13 ruling, Duffy-Lewis said that the state failed to prove that publicly held corporations headquartered in California “engaged in purposeful and intentional, unlawful discrimination” in filling board seats.
She wrote that the state had not produced a single identifiable victim of gender discrimination and therefore had not proved its case.
But how would a victim even be identified? Boards are chosen in secret. You don’t toss your name into the ring. You get tapped on the shoulder.
As one witness in the trial testified, boards have “a propensity to select persons they already know.”
Isn’t that actually a pretty good definition of systemic discrimination?
If you golf with people who look like you, and lunch with people who look like you, and network with people who look like you, why would you ever feel the need to reach beyond your circle, unless someone — say, the state — gave you a nudge?
“The notion that change is going to happen on its own is just pie in the sky,” said former Democratic state Sen. Hannah-Beth Jackson, who co-wrote the law with her colleague Toni Atkins, the Senate’s president pro tem. “You cannot change the culture by simply asking politely.”
Jackson had tried that once already.
In 2013, Jackson introduced a resolution — a request, basically — that asked California’s publicly traded companies to add women to their boards. Over the next five years, women’s representation grew from an ultra-paltry 15.5% (below the national average of 16.5%) to a slightly less paltry 16%. “That was it!” Jackson told me. “Obviously it was not working. You cannot say ‘pretty please with a cherry on top.’ We have got to have legislation to change the culture. It’s the reason we have public policy.”
California Secretary of State Shirley Weber has vowed to appeal the decision, which, she said in a statement emailed to reporters, “ignores critical and substantial evidence of discrimination in the director selection process.”
The good news is that the California law, tenuous though it may be at this point, has already exerted a powerful influence.
“It absolutely elevated the conversation about board diversity, throughout the country and internationally as well,” said Annalisa Barrett, a senior advisor at the auditing firm KPMG and an expert on corporate governance and board diversity.
Many studies, Barrett said, show a link between diversity in the boardroom — of gender as well as race — and better financial performance. KPMG issued a report on the early impact of the then-new law and concluded that fears about boards making “token” appointments were unfounded.
And though it is true, she added, that other studies find a correlation but not a causality between the two, “I always tell people to think of any team you’ve been part of, you’ve seen the benefits of having diverse voices in the room.”
Companies and institutions are starting to see it too. A few states, inspired by California, have enacted board-diversity measures, though they tend to focus on disclosure about board composition rather than quotas.
Last year, the Securities and Exchange Commission approved NASDAQ’s new diversity rule requiring companies on the exchange to have at least two “diverse” board members (e.g., female, LGBTQ or a person of color), or explain why they don’t.
The investment research firm MSCI analyzed U.S. companies between 2011 and 2016 and found that organizations that began the five-year period with at least three women on their board did much better on such metrics as return on equity and earnings per share than companies that began the period with no female directors. Three female directors, they concluded, represented a “tipping point.”
Think of it this way, Jackson suggested: “If you have one woman on a board, the guys expect her to get coffee. If you have two, the women fight over who gets the coffee. But if you have three women on a board, they tell you to get your own damn coffee.”