It’s been more than three years since California enacted SB-826, a law that mandates board gender diversity for public companies headquartered in California. Since the law went into effect, women have made huge strides when it comes to representation on corporate boards in the state.
According to Jennifer Siebel Newsom, a filmmaker and First Partner of California, the number of all-male boards went from 30% in 2019 to just 1% as of last December, which she described as “a competitive advantage.” A California Partners Project (CPP) report on the law’s effect found that about half of new board directors seated in 2021 were women.
“There’s so much proof that having women in leadership is actually better for business,” Siebel Newsom, a co-founder of CPP, said on Yahoo Finance Live (video above). There’s greater creativity, productivity, and a better bottom line when you have women in leadership in the highest positions in business, not just in our state but in our country… it’s been a win-win.”
A survey from PwC found that 85% of board directors say that board diversity “enhances board performance,” 76% agree that it “improves strategy/risk oversight, and just 33% think diversity will happen naturally, “a staggering decrease from 71% in 2020.”
And yet the CPP report found that 46% of companies were still not in compliance with the law. The legislation requires corporate boards with four members or fewer to appoint at least one woman, boards of five directors to appoint at least two women, and boards with at least six members to appoint a minimum of three women by the end of 2021.
‘Women haven’t had seats to the tables of power’
Certain sectors have made better gains than others: The energy and utilities, entertainment, and retail industries have seen more women be appointed to board seats while agriculture, restaurants, and financial services are the main laggards.
“What we found is that historically, board recruitment has been done through insular networks without intentionality,” Siebel Newsom explained. “And this is the tragedy here. Because of the insular networks, the misperceptions of risk associated with bringing on women, there’s an unconscious bias. And, in fact, when recruiting takes place, if there’s no intentionality, we find that we often set the bar higher for women and lower for male recruits.”
To address these board representation issues, California lawmakers went beyond other measures, such as mentorship and sponsorship efforts, and instead opted to implement a quota to circumvent entrenched bias in board selection processes.
“I’m really proud of California because as California goes, so can go the country,” Siebel Newsom said. “Look, we’re at an inflection point in our country. Not only are we hopefully in the endemic period of a pandemic, but we’re in an economic crisis. We have a climate crisis … and it’s incumbent upon us all to recognize that women haven’t had seats to the tables of power. This is an opportunity not just for California but for our country to follow suit and see the power and profitability, not just the economic profitability, but the benefit to the environment and the benefit to the employee base in the community when you have more women in leadership on corporate boards.”
Furthermore, she stressed that California’s action on board diversity was intended to extend beyond the state’s borders and compel other states and companies to take on similar measures.
While California has gone the farthest with SB-826, Illinois has also required the state’s publicly traded companies to disclose the gender and racial diversity of their boardrooms. Other states like Washington, Colorado, and Pennsylvania have also taken legislative steps to address the issue as well.
“Remember, California is the fifth-largest economy in the world,” Siebel Newsom said. “So the decisions that are made in these company boardrooms reverberate not just throughout the company but in their communities and across society.”
Grace is an assistant editor for Yahoo Finance.
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