State bill would require firms to have women on their boards
A controversial bill requiring that publicly traded California companies include women on their boards of directors heads to the Assembly floor this week.
SB826, which is opposed by many business groups, would make California the first state with such a mandate.
State Sen. Hannah-Beth Jackson, D-Santa Barbara, the bill’s author, said it’s important for businesses to have a perspective from women — and time to “blow that glass ceiling up.”
“By having more women on boards of directors, we can assure greater protections in the workplace against things like sexual harassment,” she said.
The bill has already passed the state Senate, though it would need to return there for final approval if it gets through the Assembly, which
has added amendments.
The legislation would require that each public corporate board in the state include at least one woman by the end of 2019. This requirement would grow to two for five-member boards and three for corporations with at least six board members by 2021.
While many major companies in the Bay Area already meet the minimum requirements, some do not. San Francisco’s Nektar Therapeutics and FibroGen currently have no women on their boards.
“FibroGen is committed to diversity for the entire corporation, and we have significant diversity among our executive team, including gender diversity,” FibroGen spokeswoman Karen Bergman said in a statement. “We are always seeking qualified board candidates and to increase the diversity of our board of directors.”
Nektar Therapeutics, the best-performing company last year in a Bloomberg index of Bay Area stocks, was unavailable for comment.
Airbnb, which could go public next year, expanded its board Thursday to seven members and added its first woman. Ann Mather, the new member and a former chief financial officer at Pixar, also serves on the boards of Alphabet (which has two women out of 11 members) and Netflix (which has four women out of 11 members). The legislation permits creating an extra seat to add a female board member, though some companies would have to seek shareholder permission to change their bylaws to do so.
Of the 467 publicly traded California companies in the Russell 3000 index, female directors hold 546 seats — 15.8 percent of the 3,445 total seats on boards of directors, according to Bloomberg.
The California Chamber of Commerce opposes the bill, as do a number of other trade groups, including the California Grocers Association, the California Restaurant Association, the California Trucking Association and the California Manufacturers & Technology Association.
“California manufacturers are always looking to diversify their workforce and their executive leadership, which is why we understand the intent of SB826 but oppose the manner,” Dorothy Rothrock, president of the manufacturers and technology group, said in a statement. “A state law that requires California-based companies to either arbitrarily dismiss a male member of their board of directors or create a new seat on their board without allowing men to be hired or elected to that position violates the U.S. and state constitutions.”
The California Chamber of Commerce declined to comment directly, instead referring to a letter signed by itself and more than two dozen other business groups. While greater diversity on boards is important, the letter said, “We are concerned that the mandate under SB826 that focuses only on gender potentially elevates it as a priority over other aspects of diversity.”
The bill, if passed, could be tested by legal challenges.
"To the extent that the California legislation mandates the composition of boards of directors of corporations chartered outside of California, the legislation is almost certainly unconstitutional, even if the corporations' headquarters are in California,” Joseph Grundfest, a corporate governance expert at Stanford Law School, said in an email.
“A challenger could argue that it’s government imposed gender based law, and therefore should be subject to scrutiny under the equal protection clause,” Kristin Linsley, a partner at the law firm Gibson, Dunn & Crutcher, said in an email. “The question under that clause would be, is there a distinction based on sex, and if so, is there a compelling government justification for it?”
Jackson carried a resolution in 2013 that passed both houses of the Legislature, urging public California companies to boost the number of women on their boards by the end of 2016. A few European countries, including Norway and Germany, have enacted quotas for women in boardrooms. The percentage of women on company boards in Norway has risen from around 20 percent in 2003 to more than 40 percent in 2017, according to the Economist.
The bill defines female as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth,” meaning it includes transgender women.
Alison Davis, who is on the board of Sunnyvale telecommunications company Ooma, supports the bill. She has served on more than 20 corporate boards and recalls being the only woman on many of them.
“It should be a wake-up call to California, because we’re a progressive state,” Davis said. “We’re not doing as well as we could be and should be.”
Some tech companies have already hit parity. Four of the eight board members of Zendesk, a San Francisco customer service software company, are women. The same is true for San Francisco video game company Zynga.
“Boards are a closed, stagnant system that primarily benefits a traditional network of primarily white men and their friends,” said Amii Barnard-Bahn, who testified at the state Capitol in support of Jackson’s bill. She is a member of the Bay Area leadership council of 2020 Women on Boards, a national campaign to increase the percentage of women on company boards nationwide to at least 20 percent by 2020.
“It’s not something that’s transparent and public,” Barnard-Bahn said. Women have not “been able to break in.”