At the end of September, California became the first state to legally require private companies to put females on their boards of directors. The new law was passed in the spirit of workplace gender equality. And surely, the California State Legislature and Governor Jerry Brown both view this unprecedented law as a progressive victory. But in reality, this new law has done little aside from perpetuating the myth that women, along with other underrepresented groups, need the government in order to succeed.
Legislating Equality
There is no greater satisfaction than working diligently on your career and being promoted based on the merits of your performance. But can you imagine getting a promotion at work only to find that the reason was based not on your actual performance, but rather, was due to something completely out of your control? That is essentially what the new law in California is doing. Being asked to serve on a board of directors is a huge accomplishment, but by mandating that companies must have female board members, they are taking away the prestige of the role.
From this point forward, publically traded companies whose headquarters reside within the Golden State’s boundaries must have at least one female on their boards. As if this mandate wasn’t ridiculous enough on its own, there is actually more to it than that. By the year 2021, boards with at least five members will be required to have two to three female directors.
It is estimated that this new law will impact nearly 400 California based companies. Among those expected to be impacted are tech giants Facebook and Google, who each have more than six board members and only two females currently serving on their respective boards. Companies who do not comply with the law will have to pay a penalty to the state.
Governor Brown sent a letter to the state senate announcing his intent to sign SB-826 into law, writing:
“It’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”
The co-author of the bill, State Sen. Hannah-Beth Jackson (D–Santa Barbara) echoed Brown’s sentiment, saying:
“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.With women comprising over half the population and making over 70 percent of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions and profitability.”
The California Chamber of Commerce joined with other business coalitions around the state and released a joint statement expressing their belief that while they respect the intentions of the new law, its adoption is not the right course of action to take to promote gender equality in the workplace. In the statement, the groups said that the new legislation, “requires publicly traded corporations to satisfy quotas regarding the number of women on its board or face significant penalties, which is likely unconstitutional, a violation of California’s Civil Rights statute, and a violation of the internal affairs doctrine for publicly held corporations.”
The Problem with California’s New Law
Now, every time a woman is asked to serve on a board of directors, she will wonder whether she is being chosen based on her skills, or because the company in question wants to avoid having to pay a government fine. This is not gender equality. In fact, it is downright offensive.
Women do not need the government to help them get ahead in their careers. And the state’s intervention on this front is almost entirely unnecessary. The market has already been correcting these inequalities and in recent years we have seen more and more women taking on board member roles.
Forbes contributor and board vet Betsy Atkins commented on the new law, writing:
“I am not a fan of adding additional corporate governance regulation for several reasons. Firstly, the marketplace is already working. and we are seeing significant shifts in the addition of women joining public boards. The marketplace is an effective stimulus.”
And Atkins is absolutely right. The corporate governance firm, Institutional Shareholder Services recently found that from January to May of 2018, women made up 31 percent of 3000 publically traded companies with boards of directors. Never before in human history has the number of female board members been so high. And yet, instead of celebrating this organic growth, states like California are belittling this progress by asserting that the government is needed in order to enact real change.
There is research that suggests that having diverse board members benefits businesses by enhancing its performance. If this evidence is true, then it is in a company’s best interest to add women to their boards in able to prosper. It’s all about incentives, and adding females has shown itself to be a benefit. These companies do not need a government to tell them to add women to their boards. The evidence shows they have already figured this out.
Hopefully, this madness ends with California and does not spread throughout the country. However, it is possible that progressive cities, like Seattle or Portland, will try to enact their own smaller-scale versions of this legislation.
