In California, Women Lose a Major Driver for Spots on Corporate Boards

At least 670 women took seats on the boards of directors at publicly held California-based companies between 2018 and 2020. 

This number, which comes from a report by nonprofit California Partners Project, marked a major shift in the makeup of boards in the state — a state that’s home to many of the largest and most powerful tech companies in the world. Before the law, about 30% of boards were entirely male. That percentage dropped down to 3% in 2020.

This change came about thanks to legislation signed into law in 2018, in the wake of the #MeToo movement, by then Gov. Jerry Brown. The law directed that publicly held California-based companies on the Russell 3000 stock market index had to have at least one woman on their board by the end of 2019, and either two or three by the end of 2021, depending on the size of the board. 

Monday, a judge struck down that law in a lawsuit brought by the conservative organization Judicial Watch, which argued that the mandate was unconstitutional because it treats board candidates differently on account of gender. The judge agreed. The ruling comes a month after a separate judge struck down a similar mandate requiring one board member from an underrepresented group.

“Without the pressure of the law there, companies can slip back into intending to have inclusive practices, but without actually designing for it and funding it and prioritizing it,” said Alaina Percival, CEO of Women Who Code, a nonprofit geared toward women in tech. Despite years of scrutiny, the tech industry has struggled to embrace diversity, from entry level jobs to the C-suite. Progress has been slow, with companies publishing annual diversity reports showing incremental increases from one year to the next.

Underneath the slowly climbing numbers lie myriad concerns, including that the people designing the technology that’ll shape the future don’t represent the population who’ll use it. Moving the needle in California from 16% women on boards before the law to 32% by the end of 2021, according to Fortune, is nearly lightning speed comparatively.  “The law gave attention to and put a deadline around a conversation that has been going on for a long time, and there was no movement,” said Brenda Darden Wilkerson, president and CEO of AnitaB.org, an organization that aims to advance women in computing. 

As the law faces its demise, diversity advocates are concerned about how the change could cramp further progress, though they’re still holding out hope that at least some of the law’s effects will last. And, perhaps, legislation isn’t the silver bullet some might think.

Why put women on boards?

Boards play a major role in a company’s trajectory. They set strategic priorities and can hold executives accountable — they’re a place of power. 

For diversity advocates, the need for, and the benefit of, putting women on boards has been a no-brainer. For years, there’s been a growing pile of research suggesting that having diversity in the boardroom is good for a company’s bottom line. A 2021 report from Seattle-based nonprofit BoardReady analyzed S&P 500 companies and found that those with greater diversity of age and gender on their boards performed better during the pandemic.

The Harvard Business Review has written about how diverse teams yield more innovative decision making. The MIT Sloan Management Review noted that companies with more gender diversity on their boards were more innovative and even tended to get more patents. “The fact that these companies have such influence makes it even more critical that they have a responsibility,” said Lorraine Hariton, CEO of Catalyst, a nonprofit focused on women in the workplace. “They’ll create better products if they can serve as a broader constituency that reflects who they’re trying to service.”

Tech companies have also acknowledged benefits to building diverse teams.  “We remain committed to diversity on our board. We believe diversity and inclusion at all levels of the company is key to innovation,” Intel said in a statement. 

Along those lines, a spokesperson for HP said in a statement, “Boardroom diversity is a proven source of strength for HP and will remain a top priority moving forward. We are deeply committed to advancing a culture of diversity, equity and inclusion at all levels of our company to drive innovation and business results.”  Gender is only one component. 

“When you don’t have diversity in terms of points of view, experience and identities in the room, you can sometimes set priorities that aren’t necessarily beneficial to everyone. And certainly, you’re limited in what you’re able to see,” said Y-Vonne Hutchinson, CEO and founder of diversity consultancy ReadySet.

Legislating diversity 

Though roughly doubling the percentage of women on boards within a few years is an impressive stat, legislation isn’t necessarily a cure-all. Before the California law went on the books, countries like Germany, France, Belgium and Italy made similar moves.

Norway was the first country in the world to enact a gender quota, requiring boards to have 40% women. More than a decade later, The Economist reported that the law had no discernible impact on the numbers of women in senior positions, and the pay gap had only shrunk for the women in board of director roles. Though the hope among advocates is that more women at the top clears a path forward for other women to move up, in Norway that just hasn’t happened. 

Hutchison pointed out that getting more women on boards doesn’t automatically mean that broader, underlying issues in the industry will be addressed, like harassment and discrimination. Or that women of color won’t remain disadvantaged and overlooked compared with white women. There’s no guarantee that the women put in board seats will advocate for reforms or push for other forms of diversity — racial, ethnic and more.

And it’s a lot to put on the shoulders of two or three women, to fix everything that could be wrong in a company. It’s also potentially tokenizing. “It lulls us into thinking that we’re solving the problems that drive disparity, when all we’re doing is putting people in seats,” Hutchinson said. “Sometimes those people will work towards that common good, and sometimes they won’t.” 

That’s not to say Hutchinson didn’t support the legislation. She did, calling it an important and powerful statement on the governor’s part. Legislation just can’t be the only answer. 

For example, though the mandate stipulated penalties of £100,000 to £300,000 for companies that didn’t comply, the mandate was never actually enforced, Betsy Bogart, chief of business programs at the California secretary of state’s office, told The Los Angeles Times this week. CBS News reported that less than half of the 650 companies that should’ve complied with the law actually did.  “If we’re going to address the root cause of poor representation, low levels of diversity, lack of inclusion, we have to start with the fact that we’re not enforcing the protections that exist to remedy that case,” Hutchinson said. 

What comes next

Though the law has been struck down, diversity advocates note that it’s touched off a larger movement.

Washington state passed similar legislation, and states like Hawaii, New Jersey and Massachusetts proposed bills. It remains to be seen what legal challenges may lie ahead.  Diversity advocates see the situation as a disappointment. 

“The worry is that … people who felt compelled because they had a deadline now can rest back on their laurels because they don’t have to,” Wilkerson said, though she and others pointed out that this isn’t a defeat for the movement because legislation isn’t the only way to exert pressure on companies to diversify. In 2020, Goldman Sachs said it wouldn’t take companies public unless they had “at least one diverse board member,” and then the company increased that requirement to two members, encompassing women and people from underrepresented groups. Nasdaq will require companies on the exchange to have at least two diverse board members or explain why they don’t. The rule is supposed to go into effect in August 2023. 

“Companies will have to speak to why their boards are not diverse. I think there’s not a single boardroom in America that’s not talking about diversity right now,” said Megan Wang, who also noted the impact of social movements from the past few years, including #MeToo and the protests over the killing of George Floyd. Wang is chief operating officer for the Boardlist, an organization that connects companies with qualified women candidates for board seats.

And not for nothing, those 670-plus women still have their seats. And for those in their first board appointment, they now have crucial experience to get another board seat, breaking a vicious cycle of dismissing women candidates because they don’t have enough experience, and women not being able to get that experience because they can’t get a board seat. Wang said now’s the time to go to companies and document the tangible results of having a diversified board of directors, as well as talk to first-time board members.

She said it’s also important to make more inroads with private companies, particularly ones in their early stages, and work on building diverse boardrooms from the start.

In First Round Capital’s last published State of Startups report, from 2019, 48.7% of founders polled said their boards were all male.

“While it is disheartening to see this judgment being made,” Wang said, “I think ultimately progress will prevail.”