Gender Diversity on California Corporate Boards Was Too Good To Last

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The “Fearless Girl” statue, a four-foot statue of a young girl, was installed in front of the bronze “Charging Bull” for International Women’s Day in 2017 in NYC to draw attention to the gender pay gap and lack of gender diversity on corporate boards in the financial sector. (Volkan Furuncu / Anadolu Agency / Getty Images)

In 2018, California broke new ground for women when Governor Jerry Brown signed the first-in-the-nation requirement that publicly traded companies in the state have at least one woman on their board of directors by the end of 2019, and two or three (depending on company size) by the end of 2021. The bill’s co-sponsor state Senator Hannah-Beth Jackson put it bluntly: “We are not going to ask any more.  We are tired of being nice. We’re tired of being polite. We are going to require this because it’s going to benefit the economy. It’s going to benefit each of these companies.”

Alas, it was too good to last. Last month, the law was deemed unconstitutional in a bench trial by Los Angeles County Superior Court Judge Maureen Duffy-Lewis because it wasn’t designed to remedy a “specific, purposeful, intentional and unlawful” instance of discrimination. She added that the state’s claims that diverse boards would directly boost California’s economy could not be proven.

So much for sisterhood and solidarity.

It’s no surprise that Judicial Watch, the conservative group that prevailed in the litigation, trotted out the dreaded “Q Word” in opposing the measure: quotas. Legal precedent holds that quotas violate the Civil Rights Act of 1964, which prohibits discrimination against people based on race, gender, religion, age and other protected identities, because they could lead companies or schools to discriminate against people outside the targeted groups.

Never mind that in this case the poor, underrepresented targeted group happened to be wealthy white men, who have dominated corporate boards since Queen Elizabeth I the granted the first corporate charter to the East India company in 1600.

The ruling is without question a legal and moral setback, but fortunately for the future of women on boards in corporate America, that particular train may have already left the station. In the short time the law was in force, the percentage of board seats held by women virtually doubled—from 15.5 percent to 31.9 percent. In raw numbers, that translates to 766 female board members when the law was passed to 2046 by the end of 2021. 

Wealthy white men have dominated corporate boards since Queen Elizabeth I the granted the first corporate charter to the East India company in 1600.

These figures indicate that the ruling won’t reverse the trend for more gender diversity. The move to diversify boards comes backed by multiple studies showing the benefits. Companies with women on their boards are more likely to “create a sustainable future” by instituting strong governance structures and a high degree of transparency, and the presence of women on the board is tied to debt avoidance, better stock performance and high performance during the recession.

Pluses notwithstanding, the ruling could slow things down or even halt progress in more backward-looking corporations—particularly for women of color—whose numbers are already low. According to Equilar, a corporate board data firm, as of last August only 1 percent of women-held seats were by Latinas. Black and Middle Eastern women made up 2 percent and 0.2 percent of board seats respectively. Asian/Pacific Islander women had the most representation at 3.1 percent. (It should be noted that nearly 20 percent of female directors didn’t identify their race or ethnicity, Equilar said.)

It’s clear from the pitiful progress since California led the way that stronger action is needed. Cases in point: Washington state’s law requires boards to have at least 25 percent of their makeup be members who self-identify as women. But violators face no penalties. Three other states—Maryland, New York and Illinois—merely require boards to disclose their demographic makeup. Ohio “encourages,” but does not require, disclosure.

We should take a page from the European Union playbook, where 40 percent female board seats for publicly traded companies were required as of March of this year. Under the new rules by the Council of the E.U., listed companies must meet the mandate by 2027. Those that fall short by the deadline will have to institute new direct selection systems to achieve the required gender balance.

On May 23, California Secretary of State Shirley Weber announced that she will appeal the California ruling, which will take time and may not be successful. Without formal requirements, we can only hope a growing critical mass of women can change corporate culture that’s still merrily skating along with those unwritten “majority male quotas” that have been firmly in place for centuries.

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Martha Burk is money editor at Ms.