Gov. Jerry Brown made history Sept. 30 by signing a bill into law that requires major California-based companies to have female directors on their boards.
The law, known as SB 826, is a first of its kind in the country and calls for publicly traded companies with headquarters in the state to maintain at least one woman on their boards by the end of 2019.
That number would increase to two women on boards of five – and three women on boards of six or more – by the end of 2021. Companies that don’t meet the board requirement will face financial penalties. This comes as welcome news, but it is also long overdue.
Only 17.9 percent of corporate directors at Fortune 1000 companies are women, according to the 2020 Women on Boards campaign. It’s slightly higher in California, with 20.8 percent of board seats held by women. This is a very small number when you consider that women account for 47 percent of the U.S. workforce, and more than 40 percent hold management or professional positions, according to U.S. Department of Labor.
The new California legislation has a multitude of benefits, and not all are just for women:
Having more women on boards can improve your bottom line. A 2017 study by MSCI Inc., found U.S. companies with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period. A 2016 Credit Suisse report stated companies with more female executives in decision-making positions generate stronger market returns; for example, when women accounted for 25 percent of senior leadership, they outperformed at a compound annual growth rate of 2.8 percent over a three-year period, and that jumps to 10.3 percent at companies where more than 50 percent of senior leaders are women.
The new law will encourage more women to aspire to leadership positions. Women want role models that look like them. Many of my female students have said to me, “If I don’t see a woman in a position that I might aspire to, I am far less likely to try to achieve that position.” If we put more women on boards, those young women will see their role models enacting leadership.
Women making important decisions will positively influence the organizational culture. When a company makes a commitment to gender diversity at the board level, that commitment is far more likely to span the entire corporation. When a company doesn’t make that same commitment to gender diversity, then women have a much more difficult time advancing into leadership roles. Ultimately, it has to do with embedding diversity and inclusion into the fabric of the organization. This level of commitment results in a sustained organizational culture where everyone can flourish and reach their highest potential. An organization rich in diversity, in all its forms, from the top and all across the enterprise, attracts the best talent, is more agile and is better able to adapt to changing market conditions.
Requiring women on boards of California companies will cascade and lead to change in other states and nations. California is a leader on many issues, and gender equity is no exception. This legislation will not only create change at the top, but the benefits, as noted above, will trickle down.
California companies will benefit from more women on their boards because advancing women is just good business.
Dr. Bernice Ledbetter is director of the Center for Women in Leadership at Pepperdine Graziadio Business School.
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