Cal­i­for­nia moves to man­date fe­male board di­rec­tors

Bill passes re­quir­ing pub­licly traded firms to have at least one woman on board

The Niagara Falls Review - - Canada & World - VANESSA FUHRMANS AND ALE­JAN­DRO LAZO The Wall Street Jour­nal

Cal­i­for­nia leg­is­la­tors on Wed­nes­day passed a bill that re­quires ma­jor com­pa­nies based in the state to put fe­male di­rec­tors on their boards.

If the bill is signed into law by Gov. Jerry Brown, a Demo­crat, pub­licly traded com­pa­nies based in the state will need to have at least one woman on their boards by the end of next year and, on boards of five or more di­rec­tors, two or three women by the end of 2021, depend­ing on the board’s size. Those that don’t would face fi­nan­cial penal­ties.

The bill passed the state As­sem­bly in a 41-21 vote. It is now headed to the state Se­nate, which ap­proved an ear­lier ver­sion of the bill and is ex­pected to ap­prove the mea­sure again there be­fore it heads to Mr. Brown, who hasn’t in­di­cated his po­si­tion.

“One-fourth of Cal­i­for­nia’s pub­licly traded com­pa­nies still do not have a sin­gle woman on their board, de­spite nu­mer­ous in­de­pen­dent stud­ies that show com­pa­nies with women on their board are more prof­itable and pro­duc­tive,” said state Sen. Han­nah-Beth Jack­son, a Demo­crat rep­re­sent­ing Santa Bar­bara. “With women com­pris­ing over half the pop­u­la­tion and mak­ing over 70% of pur­chas­ing de­ci­sions, their in­sight is crit­i­cal to dis­cus­sions and de­ci­sions that af­fect cor­po­rate cul­ture, ac­tions and prof­itabil­ity.”

The mea­sure, which was op­posed by sev­eral busi­ness groups, could ac­cel­er­ate the di­ver­si­fi­ca­tion of board­rooms around the coun­try. The U.S. has no fed­eral re­quire­ment for fe­male rep­re­sen­ta­tion on com­pany boards and no other state has suc­cess­fully pushed such a man­date. Cal­i­for­nia’s move fol­lows sim­i­lar legally bind­ing quotas that have been set in sev­eral Euro­pean coun­tries.

Op­po­nents of the man­date, led by Cal­i­for­nia’s Cham­ber of Com­merce, ar­gued that while they agree with the leg­is­la­tion’s in­tent, a quota based solely on gen­der takes into ac­count only one el­e­ment of di­ver­sity and would vi­o­late the U.S. and Cal­i­for­nia con­sti­tu­tions be­cause it could con­ceiv­ably put com­pa­nies in the po­si­tion of turn­ing down a male board can­di­date or dis­plac­ing a male board mem­ber based on his sex.

The leg­is­la­tion it­self pro­vides for cre­at­ing an ex­tra board seat to ac­com­mo­date a new fe­male mem­ber in­stead of re­mov­ing a man al­ready on the board.

Coun­tries in­clud­ing France, Ger­many and Italy have en­acted more strin­gent man­dates for women on cor­po­rate boards in re­cent years. In the U.S., even some staunch ad­vo­cates of boost­ing the num­bers of fe­male di­rec­tors have been re­luc­tant to en­dorse board quotas.

Among firms in the Rus­sell 3000 In­dex, which in­cludes most pub­lic com­pa­nies on ma­jor U.S. stock ex­changes, 485, or 17%, had all-male boards in the sec­ond quar­ter, ac­cord­ing to Equilar, a re­search firm that gath­ers data on ex­ec­u­tives and boards.

Cal­i­for­nia is home to 86 com­pa­nies in the Rus­sell 3000 that don’t have any women on their boards, in­clud­ing shoe-maker Skech­ers USA Inc., en­ter­tain­ment tech­nol­ogy firm TiVo Corp. and Inc., which sells print­able postage.

TiVo said it takes di­ver­sity se­ri­ously but be­cause it is un­der­go­ing a pub­licly an­nounced re­view of strate­gic al­ter­na­tives, the com­pany isn’t ac­tively look­ing for new board mem­bers. Skech­ers de­clined to com­ment, and didn’t re­spond to re­quests for com­ment.

Many large cor­po­ra­tions based in Cal­i­for­nia, in­clud­ing Chevron Corp., Net­flix Inc. and Al­pha­bet

Inc.—the par­ent com­pany of Google and YouTube—al­ready have mul­ti­ple fe­male di­rec­tors. Though the pro­posed law im­me­di­ately af­fects a limited num­ber of com­pa­nies, its pas­sage would put fur­ther pres­sure on Sil­i­con Val­ley’s star­tups to bring gen­der di­ver­si­fi­ca­tion to their boards be­fore go­ing pub­lic.

Last week, San Fran­cis­cobased Airbnb Inc. ap­pointed its first fe­male direc­tor—Ann Mather, a former Pixar An­i­ma­tion Stu­dios fi­nance chief who serves on sev­eral other boards—mak­ing good on a pledge made ear­lier this year to add at least one woman to its board in the near term. The com­pany has been mak­ing prepa­ra­tions to go pub­lic as early as mid-2019.

If signed into law, the Cal­i­for­nia man­date will likely help fuel sim­i­lar move­ments else­where. Mas­sachusetts and Illi­nois have passed non­bind­ing res­o­lu­tions that push com­pa­nies to im­prove the gen­der bal­ance of their boards. A num­ber of big in­vestors, in­clud­ing State Street Global Ad­vi­sors and Black­Rock Inc., have pressed firms with all-male boards to change, in some cases withholding proxy votes.

More women are join­ing boards, spurred in part by pres­sure from in­vestors. Women ac­counted for 35% of all new direc­tor ap­point­ments at Rus­sell 3000 com­pa­nies dur­ing the sec­ond quar­ter, up from 32% in the first quar­ter and 29% in 2017, ac­cord­ing to Equilar. The share of com­pa­nies in the in­dex with all-male boards fell be­low 20% for the first time this year, down from nearly a quar­ter in 2016.

De­spite the in­crease, the over­all share of women on boards has ticked up only slightly, to 17.7% in the sec­ond quar­ter from 16.2% in the year-ear­lier period. Board re­cruiters say the lack of turnover is slow­ing change. The av­er­age direc­tor at an S&P 500 com­pany stays on more than eight years and the ma­jor­ity of boards have no term lim­its, ac­cord­ing to Spencer Stu­art, an ex­ec­u­tive re­cruit­ment firm.

By con­trast, the num­ber of women on big-com­pany boards in Italy, Ger­many and sev­eral other Euro­pean na­tions has tripled and, in some cases, quadru­pled in re­cent years as man­dates have forced cor­po­ra­tions to boost the share of fe­male di­rec­tors to as much as 40%.

In the U.S., some di­ver­sity ad­vo­cates have cau­tioned that le­gal man­dates could un­der­cut more or­ganic, eco­nomics-driven ef­forts to spur change. Rakhi Ku­mar, a se­nior manag­ing direc­tor at State Street who over­sees its board-di­ver­sity ef­forts, has said that on av­er­age, large Euro­pean com­pa­nies con­tinue to have fewer women in se­nior ex­ec­u­tive roles than their U.S. coun­ter­parts. All pub­lic com­pa­nies are re­quired to have a board of di­rec­tors that rep­re­sents share­hold­ers and over­sees com­pany man­age­ment.


Cal­i­for­nia state Sen. Han­nah-Beth Jack­son, a Demo­crat, says women’s in­sights are “crit­i­cal to dis­cus­sions and de­ci­sions that af­fect cor­po­rate cul­ture, ac­tions and prof­itabil­ity.”

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