California’s groundbreaking law requiring corporations to have at least one women on their board of directors has quadrupled the number of women on boards. But progress is now threatened by conservatives alleging “sex-based discrimination.”
In the fall of 2018, California adopted a groundbreaking law—SB 826, requiring all public corporations headquartered in California to have at least one woman on their boards of directors by the end of 2019. By the end of 2021, the law requires corporations to have at least two women on boards of five directors and three women on boards of six or more directors. The law has had a huge impact, nearly quadrupling the rate of companies adding women to their boards.
But this progress is now threatened by a recent Ninth Circuit ruling reviving a case alleging the law “perpetuates sex-based discrimination.” A lower court had dismissed the case.
The California legislature passed the law out of concern for the slow pace of progress for women on boards. The legislative findings stated, “If measures are not taken to proactively increase the numbers of women serving on corporate boards, studies have shown that it will take decades to achieve gender parity among directors.” Research by Morgan Stanley Capital International indicates that in the absence of intervention, it could take until 2045 for women to comprise 50 percent of corporate boards.
In addition to requiring boards to add women, SB 826 requires the California secretary of state to publish an annual report listing corporations in compliance with the law—and those who are not. Corporations violating the law are subject to fines of $100,000 for the first violation and $300,000 for subsequent violations. SB 826 defines a “female” as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.” The law applies only to “publicly held domestic or foreign corporations,” not all corporations.
Before the law, California ranked 29th among all U.S. states in terms of the percentage of female board members (17.4 percent). By March 2021, California had jumped to the 12th position. In 2018, 86 California companies in the Russell 3000 Index had no women on their boards. Three years later, that figure has dwindled to almost zero, compared to 20 percent of Utah companies that have no women on their boards. Today, California corporations have 27.7 percent of directorships held by women.
More women on boards makes good business sense, says California Partners Project, which advocates for increasing the number of women on boards. Companies with women directors on their boards outperformed shares of comparable businesses with all-male boards by 26 percent. Companies with three or more female directors reported earnings that were 45 percent higher per share than companies with no female directors.
But conservatives are now threatening this progress. Creighton Roland Meland, Jr., a retired banking and finance lawyer at the law firm of Baker McKenzie in Chicago, has filed a lawsuit challenging SB 826. Meland, who is a shareholder of the California X-ray technology company OSI Systems, Inc., argues that the law requires him to “perpetuate sex-based discrimination” when voting for the board of directors in violation of his Fourteenth Amendment Equal Protection Clause rights. At the time he filed his lawsuit, all seven members of OSI Systems’ board of directors were men (they have since added a woman).
A lower federal court dismissed the lawsuit because of Meland’s lack of sufficient connection to and harm from SB 826, but last month conservative judges on the Ninth Circuit Appeals Court revived the case. Writing for the court, Judge Sandra Ikuta—appointed by George Bush and a member of the right-wing Federalist Society—ruled that Meland “may suffer a concrete, personalized injury” from having to vote for a woman. Judge Ikuta described the law as “coercive legislation to achieve gender parity” that could result in “public shaming.” Ikuta was joined by Trump-appointed Judge Daniel A. Bess. A Clinton-appointed judge, M. Margaret McKeown, also joined the opinion.
Meland was supported by a band of conservative advocacy groups, including the Independent Women’s Forum, the Goldwater Institute, the Hamilton Lincoln Law Institute and the Philanthropy Roundtable—as well as Linda Chavez who served in the Reagan administration—all of whom filed briefs in the case. Conservatives have filed a similar case in state court under the equality provision of the California constitution.
Tulane University law professor Ann Lipton has expressed concern about the implications of the Ninth Circuit’s decision.
“Since it applies exclusively to publicly-traded companies, there were few avenues to challenge it legally because most public company boards won’t want to declare themselves opposed to diversity,” said Lipton. “But the Meland ruling allows boards to use shareholders as a cat’s paw for positions they don’t want to take openly.”
Tracking Gender Diversity Across the Board
50/50 Women on Boards (50/50WOB), a California-based global advocate for gender balance and diversity on corporate boards, recently released their Gender Diversity Index for the first quarter of 2021. The index reported that 27.7 percent of total board seats in California were held by women as of March 31, 2021. As of that date, eight percent (40) of the 487 active California public companies, had gender-balanced boards, 37 percent (181) had three or more women, and 54 percent (265) had one or two women on their boards. At the time, one company had no women but they have since added one. Fifty-four percent (264) of California public companies need to add women to their boards this year to comply with SB 826.
“The opportunity for women to join boards in California is huge,” said CEO of 50/50WOB Betsy Berkhemer-Credaire. “California companies need to add between 335–350 women to their boards, depending on whether women replace men or seats are added, to comply with Phase 2 of SB 826 at the end of 2021.”
50/50WOB has a searchable database providing information on the percentage of women on boards by company, sector, and state. 50/50WOB also provides educational programs for board-ready women and mid-career women on how to become board-ready.
SB 826 has made California corporations outperform most large companies on average. At 27.7 percent female board membership, California public boards are more gender diverse than the boards of publicly traded companies on the Russell 3000 Index, where women hold only 24.4 percent of board seats as of March 31, reports 50/50WOB. Women held 6,598 seats of 27,091 total board seats at the 2,918 active companies on the Index. Only six percent (169 companies) have gender balanced boards, while 33 percent (957) have 3 or more women and 61 percent (1643) have two women or less. No women serve on the boards at 4.9 percent (144) of corporations.
Europe has the highest female representation on boards, with 81.8 percent of boards having three or more females as of 2020. Many European countries have mandates requiring women on corporate boards, including Norway, Germany, France, Spain, Italy, Belgium, Iceland and the Netherlands, as well as the European Commission. Norway was the first country to adopt a mandate in 2003. Many countries in other parts of the world have gender diversity mandates for corporate boards as well, including India, Pakistan and Israel.
Intersectional Board Representation
While SB 826 has increased the number of women on corporate boards in California, a report by the Latino Corporate Directors Association revealed that most new female board members—77.9 percent—were white women, whereas 11.5 percent were Asian women, 5.3 percent were American women, and only 3.3 percent were Latinas. California has an Hispanic population of 39.4 percent. In October 2020, California adopted AB 979 requiring racial diversity on boards, patterned after SB 826. Conservative groups immediately challenged the law in state court.
50/50WOB has a goal for women of color to hold at least 20 percent of all board seats in the U.S., based on their proportional representation in the U.S. population. While 50/50WOB does not include data on race in the Gender Diversity Index, they have committed to disaggregating the data to report by Latina, Black, Asian Pacific Islander, Indigenous and Middle Eastern women as data is made available by race and ethnicity or if disclosure is required by the U.S. Securities and Exchange Commission.
This fall, 50/50WOB is bringing together business leaders and advocates from around the world for a virtual conference—The Global Conversation on Board Diversity—on November 3, 2021 and is also hosting 32 city and state events across the United States, Canada, Mexico, Greece, the U.K. and Spain between November 4th to 19th. No matter what happens with Meland’s suit, Berkhemer-Credaire is determined to continue the important work of gender equity on corporate boards.
“While we see quarter-to-quarter increases in women on boards, corporations and institutional investors need to continue to take deliberate actions to achieve gender balanced and diverse boards,” said Berkhemer-Credaire. “We will continue to educate women about how to pursue and position themselves for board service, while advocating and collaborating with our network of allies.”