California Becomes First State to Require Women on Corporate Boards

by | October 1, 2018

By Patrick McGreevy

Gov. Jerry Brown on Sunday signed a bill into law that makes California the first state to require corporate boards of directors to include women, saying that despite potentially "fatal" legal problems in the measure, it is time to force action.

"Given all the special privileges that corporations have enjoyed for so long, it's high time corporate boards include the people who constitute more than half the 'persons' in America," Brown wrote in a signing message.

The new law requires publicly traded corporations headquartered in California to include at least one woman on their boards of directors by the end of 2019 as part of an effort to close the gender gap in business.

By the end of July 2021, a minimum of two women must sit on boards with five members, and there must be at least three women on boards with six or more members. Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.

Business groups have questioned the legality of a state imposing such requirements on corporations, many of which are incorporated in other states. Brown was not persuaded by the opposition.

He copied his signing letter to the U.S. Senate's Judiciary Committee, which has advanced Judge Brett Kavanaugh's nomination to the Supreme Court to the full Senate despite testimony by a woman who said he groped her when they were in high school.

"There have been numerous objections to this bill and serious legal concerns have been raised," Brown said. "I don't minimize the potential flaws that indeed may prove fatal to its ultimate implementation. Nevertheless, recent events in Washington, D.C. _ and beyond _ make it crystal clear that many are not getting the message."

There are 377 California-based companies on the Russell 3000 stock index of large firms with all-male boards that could be affected by the new law, said Annalisa Barrett, a clinical professor of finance at the University of San Diego's School of Business. Hundreds of smaller companies will also be affected by the law, she said.

Tivo's seven-member board is all male, as is the five-member board of Stamps.com, which responded to a Los Angeles Times question on the new mandate with a statement saying it "is reviewing the law but otherwise has no comment at this time."

Those concerned about the lack of gender equity in the boardroom include Shannon Gordon, the CEO of theBoardlist, which connects executives and investors with qualified women who may not otherwise be considered for board appointments.

"The problem is extensive," Gordon said. "Given the numbers, it's clear that we haven't made as much progress as we'd all like to see. We are on pace right now to reach gender parity in boardrooms by 2055. So we are just not where we need to be."

The legislation is opposed by more than 30 business groups, including the California Chamber of Commerce, which said it appears to violate existing law and the state and U.S. constitutions because it will "displace an existing member of the board of directors solely on the basis of gender."

The coalition of opponents sent a letter to state officials saying they are committed to workplace diversity, but added, "We are concerned that the mandate under SB 826 that focuses only on gender potentially elevates it as a priority over other aspects of diversity."

The opponents include the California Restaurant Association and chambers of commerce in Long Beach, Simi Valley, Garden Grove, Redondo Beach, Cerritos and Brea.

The business groups added that federal law says corporations are governed by the laws of the state in which they are incorporated, not by the state where their main office is located.

More than 80 percent of the Russell 3000 companies headquartered in California are incorporated in Delaware, according to Barrett, who also heads the firm Board Governance Research LLC.

The conflict created by the new law, the business groups warned, will create "confusion and ambiguity" that "will only lead to costly fines as proposed under the bill and potential litigation."

If the law survives a legal challenge, 684 women will be needed to fill board seats for Russell 3000 companies by 2021, Barrett said.

(c)2018 Los Angeles Times