Gov. Jerry Brown signed legislation Sunday requiring that publicly held corporations with principal executive offices in California include women on their boards.
Publicly held corporations in California must now include women on their boards or face financial penalty, according to landmark legislation signed into law Sunday by Gov. Jerry Brown.
“As far back as 1886, and before women were even allowed to vote, corporations have been considered persons within the meaning of the Fourteenth Amendment,” Brown wrote in a signing message. “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.”
The bill requires that publicly held corporations that have their principal executive offices located in California have at least one woman on their board of directors by the close of 2019; by the end of 2021, the required minimum rises to two women for boards of five directors, and three women for boards of six or more directors.
European countries like Norway, Germany and France have already instituted boardroom quotas for gender diversity, and some U.S. states have passed nonbinding resolutions. California is the first state to issue such a mandate.
State Sen. Hannah-Beth Jackson, who helped introduce the legislation, thanked the governor on Twitter. “Yet another glass ceiling is shattered, and women will finally have a seat at the table in corporate board rooms,” she wrote. “Corporations will be more profitable. This is a giant step forward for women, our businesses and our economy.”
Jackson made her case in an interview with the Wall Street Journal last month, pointing out women make up more than half the population and drive a majority of purchasing decisions. “One-fourth of California’s publicly traded companies still do not have a single woman on their board, despite numerous independent studies that show companies with women on their board are more profitable and productive,” she said.
Indeed, research shows that Fortune 500 companies with more women board directors achieve higher financial performance on average; a 2014 Credit Suisse Research Institute report found that “companies with higher female participation at Board level or in top management exhibit higher returns, higher valuations and higher payout ratios.” And a 2011 study of Norwegian firms cited in the bill suggested that “attaining critical mass — going from one or two women (a few tokens) to at least three women (consistent minority) — makes it possible to enhance the level of firm innovation.” Some are also skeptical of such findings.
Women hold about 18% of board seats at America’s 3,000 biggest companies, according to WSJ, but make up just 10% of lead independent directors and 4% of chairpeople.
The California legislation has drawn criticism from the California Chamber of Commerce and other business groups, which agreed on the bill’s general intent but argued in a letter last spring that it potentially elevated gender “as a priority over other aspects of diversity,” and likely violated both the state and U.S. constitutions and state civil rights law.
Brown acknowledged the “serious legal concerns” some had raised before justifying his decision to forge ahead. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation,” he wrote. “Nevertheless, recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message.”
He copied his letter to the Senate Judiciary Committee, which has made headlines recently for its handling of sexual assault allegations against Supreme Court nominee Brett Kavanaugh.
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