Late rush to add women to boards

In the early 1990s, Bill Entringer, then chief executive of Selective Insurance, decided he wanted Joan LammTennant — a tenured professor at Villanova University with a doctorate in finance — to join his board.

LammTennant had never served on a board before and certainly didn’t have the letters CEO on her resume.

Without that kind of background, a search firm “would have never called me,” LammTennant said. Entringer appointed her anyway — the company’s first and only female director.

Fast forward almost three decades and things are starting to change.

In September 2018, California became the first state to legally compel corporate board diversity with a law mandating that every public company in the state have at least one female director by the end of 2019. The law set off a scramble to find hundreds of female directors, many of whom don’t fit the traditional mold.

members to have at least two female directors and at least three on sixperson boards. If companies continue to break the law, they face a steeper penalty of $300,000 for every seat that should be filled by a woman.

The text of the law, signed by former Gov. Jerry Brown, cites several studies that found an association between diverse boards and enhanced company performance, though researchers also emphasized that the link wasn’t evidence of cause and effect.

For years, governments across Europe have been pushing similar efforts, with Norway becoming the world’s first country to put in place a gender quota in 2008, and France, Germany, Spain and Italy following suit.

But the California mandate isn’t without controversy.

Two lawsuits filed this year argue that the law is unconstitutional because it “seeks to force shareholders to perpetuate sexbased discrimination,” according to one of the plaintiffs, Creighton Meland Jr., a shareholder in OSI Securities.

In the U.S., women hold about 20% of board seats at companies listed in the Russell 3000 stock index, up from 17% in 2018, according to the nonprofit 2020 Women on Boards. Of the more than 600 California companies that are listed on a major stock exchange, almost onethird had no women on the board when the law was passed.

As the Dec. 31 deadline was creeping closer, 30 to 60 companies still haven’t added a woman to the board. Researchers who have been tracking the shift over the past year don’t agree on the final figure because of a flurry of recent activity, with some companies naming female directors in just the past few weeks. One firm, Clean Energy Fuel Corp., named a woman to its board this month and, two days later, OSI Securities named a female director.

The companies that have not yet added any women tend to be young firms in the hightech or biotech industries with small boards to begin with and relatively smaller market capitalizations, explained Kathleen Kahle, a professor of finance at the University of Arizona who has been closely monitoring the change in California.

For these companies, adding an additional board member can be costly. The average director pay for all California firms hovers around $181,000 (nearly double the $100,000 fine), and there are additional costs of travel related to board meetings, Kahle added.

Another hindrance is the perceived lack of experience. Historically, boards sought candidates who had served as a public company chief executive. And because public companies, for decades, have largely been run by men, director candidates have typically been limited to, well, men.

“We’re trying to teach boards to let us introduce ‘boardready’ women,” said Jeanne Branthover, a managing partner at the executivelevel recruiting firm DHR International, referring to women with senior, CSuite level experience who might have served on nonprofit boards or school boards or presented to their own boards. However, that doesn’t mean the quality of the female candidates dips, Branthover was quick to emphasize.

“They’re qualified and they’re ready,” Branthover said.

Other companies have put forward women within their own network, Kahle said.

“In many cases, the woman that was added was someone who was already a company insider,” she added. “So maybe the legal adviser or, on the biotech companies, often some sort of doctor.”

That shift has reimagined what each board member should bring to the table and thus widened the talent pool.

Board seats are being redefined as functional roles “instead of everybody being former CEOs and CFOs who don’t have deep knowledge of certain functions,” said

Robin Toft, founder of San Francisco’s Toft Group Executive Search, who specializes in placing women on boards. In the past year, her firm did more board searches than it had done in the past 10 years.

The California law has also had a ripple effect, as lawmakers in New York and New Jersey consider similar mandates.

Companies across the country, spurred on by activist investors, such as BlackRock, have been actively diversifying their boards.

“You know, there’s that old saying, ‘One woman is a presence, three is a voice,’ ” said LammTennant, who now serves on the boards of AXA Equitable Holdings, Element Financial Management Corp. and Ambac Financial Group.

By the time she left her position as director at Selective Insurance in 2015, she had helped get three other women onto the board there.

In September 2018, California became the first state to legally compel corporate board diversity with a law mandating that every public company in the state have at least one female director by the end of 2019.