California Moves to Make Female Board Members Mandatory

Companies with their headquarters in California may soon be required to have at least one woman on their board of directors. Senate Bill 826 has been created to answer the clear problem of corporate diversity within the uppermost levels of business.

There are 445 publicly traded companies in California, of which 26.1% don’t have a single woman on their board. 37.5% of these companies have one woman on the board, 24.3% have two women, 8.5% have three women and 3.6% have more than three women. At a time when the gender pay gap is coming under greater scrutiny, California is looking to take the lead in making a change.

What does Senate Bill 826 require companies to do?

If passed into law, Senate Bill 826 would require every public company with headquarters in California to feature at least one woman on their board by the end of 2019. The bill then goes one step further by making additional demands from larger companies. By July 2021, companies whose boards have five directors would have to ensure two were women, whilst those with six would be required to have three women. Failure to comply would be punished by an initial $100,000 fine with the possibility of further escalation.

Senate Bill 826 is sponsored by Democratic Senator Hannah-Beth Jackson of Santa Barbara and Senate President Toni Atkins of San Diego. It has already passed through the Assembly (41-21) and the Senate (23-9) and now awaits a final decision from Governor Jerry Brown.

This bill is not without precedent. Since 2007, Norway has required 40% of corporate board directors to be female and a similar law came into effect in France in 2017. Germany also has a quota for female board representation but it is slightly lower at 30%. California itself has previously called on public companies to make greater efforts in improving corporate diversity, leading to an improvement of 20% in the number of female board directors. However, this was a non-binding agreement.

What are the criticisms of the bill?

Whilst the bill has received strong support from the National Association of Women Business Leaders, it has only come in from fierce criticism from business groups, including the California Chamber of Commerce.

From a legal perspective, there are concerns that it violates civil rights and so could be subject to multiple legal battles. Opponents believe that in forcibly increasing the role of women, the bill discriminates against men and contravenes the U.S. Constitution’s stance on equal protection. They argue that companies who do not wish to simply create new positions will have to remove men who already occupy roles, even if they could be considered diverse themselves on the basis of race, disability or sexuality.

There are also constitutional concerns in regards to companies whose headquarters are based in California but who are incorporated elsewhere. The federal constitution states that a company’s affairs can only be governed by the state in which it is incorporated.

Women themselves have opposed the bill on the basis that they do not wish to be seen as a token, uncertain as to whether they were hired due to their gender or suitability for the role.

What does it mean for business?

When similar laws have been introduced elsewhere, like Europe, there has typically been a rise in demand for qualified women to fill the posts. Should Governor Jerry Brown sign Senate Bill 826 into law, Californian companies will be under pressure to identify, attract and recruit the very best talent in a highly competitive marketplace.

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