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Friday, Apr 12, 2024

2018 Gender Diversity Law Reshaping Corporate Boards

California Senate Bill 826, the gender diversity law passed in 2018 that mandates specific requirements regarding the makeup of corporate boards, continues to take hold — and reshape boardrooms across the state.

SB 826’s overarching goal is to ensure that at least one woman has a seat on the board of every publicly held company throughout California in order to advance equitable gender representation.

The not-for-profit California Partners Project, which champions gender equity, reported that when SB 826 became law, 1,275 women needed to be added to public company boards in California.

California Partners Project includes on its website a list of more than 300 companies in the state that as of September 2021 were in need of women board members.

Men have traditionally had a stronghold on board director seats across the state, nation and globally, but San Diego County companies appear to be doing their share to diversify their boardrooms.

In June 2018, women held 74 of 617 total board seats at 88 San Diego County publicly held companies. As of Sept. 30, 2021, of 883 total board seats at 112 local companies, 272 were held by women, according to Jessica Grounds, lead researcher and adviser to California Partners Project and co-founder of Mine The Gap.

The increase from 12 percent to 31 percent “shows incredible growth in just three years,” Grounds said. “This growth highlights the fact that the law has worked to require companies to look intentionally for the highly qualified women who already existed but were not being appointed to boards.”

The secretary of state’s office is expected to have updated numbers on compliance with SB 826 and a report in early March.

Talking Points Play an Important Role

The law made women on boards a viable talking point, and the conversations around SB 826 led to change.

“SB 826 expanded lot of discussion,” says Christina de Vaca, CEO of the San Diego-based Corporate Directors Forum. “What it did is it made people think about gender diversity, and sometimes you need something that will make you think about it. There are some studies that show that when you get a variety of perspectives to make a decision, your outcomes are stronger.”

With the passage of SB 826, California became the first state in the U.S. to require all publicly held domestic or foreign corporations with a principal executive office in California to have at least one female director on their boards by Dec. 31, 2019.

That had to be accomplished either by filling an open seat or by adding a seat. Depending on the size of the company, one or two more female directors would be required by Dec. 31, 2021.

Those companies that don’t alter their board makeup by adding female directors face fines ranging from $100,000 to $300,000.

California Partners Project said in 2021 that San Francisco County had the highest percentage of board seats held by women – 33 percent, with San Diego and Alameda counties each with 31 percent, followed by San Mateo County at 30 percent. Los Angeles County had 28 percent of its board seats held by women, and Orange County 26 percent.

California Partners Project says that women’s representation on public company boards in California has doubled from 2018 to 2021, from 766 boards to 1,844.

In San Diego, Women on Corporate Boards Doubled Since 2018

In the greater San Diego area, 67 out of 112 public companies have met the state gender board requirements. In 2018, 12 percent of boards had women directors. That number now has more than doubled, at 31 percent.

“I think San Diego is doing really well, and we had the most room for improvement, the most room for growth,” Grounds said. “We have highly qualified women that have been added to boards. I’m excited that San Diego has shown a lot of strength and progress.”

Another report from 2020 by the KPMG Board Leadership Center found that 96 percent of all California public companies had at least one woman on their board by the end of 2019. According to the California Partners Project, that number had a slight uptick to more than 98 percent by September 2021.

“We have regional support from companies to lean in, and they see that more women on top is better for business,” Grounds said.  “The San Diego business community is stepping into this.”

Annalisa Barrett, senior policy advisor at KPMG, and founder and CEO of Board Governance Research LLC, has been watching as companies responded after becoming aware of the benefits of having different backgrounds and experiences around the board table.

“The decisions made will have a broader range of viewpoints,” Barrett said. “That benefits the companies, the customers and the employee base. Having more female directors and broad candidate pools with experienced, well educated, highly qualified women to serve brings performance to the boards and the companies.”

Barrett said she is “very optimistic” that the momentum driving the change will continue as more companies see the benefits of having women and more diversity on boards in San Diego.

The evolving changes related to SB 826 may also play a part in other women – such as CFOs, COOs and those in HR — who had not previously considered becoming a candidate for a board director role.

Not everybody in the state has been on board. There are at least six lawsuits making their way through the legal system that question the law’s constitutionality, citing sex-based discrimination.

“The perspective from many organizations, and a very human reaction at that, is to say, ‘Don’t tell me what I have to do, I know what I have to do. This is our company we know what we’re doing, we’re smart,’” de Vaca said. “I personally have to say they do know what doing and they are smart. However, change is hard sometimes, and what this did was open opportunities for people, and as such, brought out a whole new perspective, this whole new understanding.”

Breaking down the percentage of seats held by women directors by industry around the state, Cal Partners Project found that the highest amount was 36 percent in the energy and utilities field; the lowest, 24 percent in agriculture.

A Global and National Look

Credit Suisse conducted a six-year global research study that showed women on boards improve business performance for key metrics, including stock performances. It reported its findings in 2019. According to the group, companies with women directors on their boards outperformed shares of comparable businesses with all-male boards by 26 percent.

Back in 2017, a progress report about women on corporate boards from Morgan Stanley Capital International found that U.S. companies with three or more female directors reported earnings that were 45 percent higher per share than those companies without female directors.

Additionally, NASDAQ now has a disclosure standard designed to encourage board diversity and create more transparency for stakeholders.

The NASDAQ Board Diversity Rule, approved by the Securities and Exchange Commission in August 2021, is a disclosure standard designed to encourage a minimum board diversity objective for companies and provide stakeholders with comparable disclosures about the composition of companies’ boards.

NASDAQ listing rules now require a company listed on the exchange to have at least one woman and one member of an underrepresented community — or the company will have to explain why it failed to do so.


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