More than three years after California passed SB-826, a law requiring gender diversity on corporate boards, women’s representation has increased across the state. However, women of color remain vastly under-represented on the boards of the state’s 650 public companies.
Whether or not you work in California, the state’s journey since the bill’s passage provides a useful case study in what it takes to truly achieve gender and racial diversity among leadership.
California’s legislature passed SB-826 in 2018, a year after the start of the #MeToo movement, to combat the slow progress in adding women to corporate boards. Legislative research found that, without proactive measures, it would have taken decades to achieve gender equality. Research from Morgan Stanley estimated it could take until 2045 for women to achieve 50% representation in the boardroom.
Specifically, the law required all public companies in California to have at least one woman on the board by December 2019 and at least 50% female representation by December 31, 2021. Companies that do not comply can be fined $100,000. The law was challenged on the basis that it violates the Equal Protection Clause of the 14th Amendment, but the suit was dismissed in federal court.
The California Partners Project estimates that 1,275 women need to join boards to fulfill those requirements. The project also found that the number of women on boards increased from 766 in 2018 to 1,483 in May 2021 and nearly all of the state’s public companies complied with the requirement to have at least one woman on the board by the end of 2019.
The steps made toward implementing SB-826 so far are admirable, but still short of the progress needed to fully realize the law’s goals. The picture becomes even bleaker for women of color in the state.
The California Partners Project reports that women of color hold 6.6% of California’s public company board seats, even though they make up 32% of the state’s population. Latinas specifically hold 1% of board seats and comprise 19% of the population.
These findings show that the newly allocated board seats are largely going to white women. The Latino Corporate Directors Association (LCDA) reported that 77.9% of post-SB-826 appointments went to white women and 11.5% went to Asian women.
"California lawmakers and corporate America must understand that gender diversity is not enough. An all-white male and female board of directors is not diverse. Board composition that lacks Latinos, is not reflective of California diversity," Linda Griego, an LCDA member former deputy mayor of Los Angeles, said in a statement. "California Latinos are an economic powerhouse driving growth in every sector of our state's economy and we should be represented on every public company board in California."
California Secretary of State Shirley Weber, whose office is responsible for enforcing SB-826, told Marketwatch that she’s hopeful California’s companies will continue to push for diversity on their boards, “I am mindful that there is still room for more diversity on corporate boards and California can do better achieving gender-diverse corporate boards for the benefit of our state, its economy, and above all, its people.”
Some California lawmakers did not share Weber’s optimism that the state’s companies would achieve racial and ethnic diversity on their own. In September 2020, the state legislature passed AB-979, which requires all public companies in the state to have at least one person from an underrepresented community on their boards by the end of 2022.
Maeve Richard, a former assistant dean at Stanford’s Graduate School of Business, told CalMatters that the first step toward achieving this diversity is for companies to look outside their social networks to find diverse talent. This is especially true for organizations that currently have all-white boards.
While AB-979 holds promise for women of color in California, its full implementation is far from a done deal. In July 2021, the Alliance for Fair Board Recruitment filed a complaint that challenges both AB-979 and SB-826 for violating the 14th Amendment.
Brian Soucek, a professor at UC Davis School of Law, told the Sacramento Bee that, regardless of what happens in court, corporations will do their best to adhere to the laws because of public relations concerns about not taking diversity seriously.
Richard instead recommends using objective criteria to ensure that boards have diverse and qualified members. But what does that look like in practice?
Writing for the Harvard Business Review, Maria Moats and Paul DeNicola of PwC’s Governance Insights Center say that the biggest obstacles to achieving diversity are an over-reliance on retirees and an unwillingness to look outside the C-Suite for candidates.
They also point to a lack of succession planning as one reason why companies tend to fall back on existing social networks rather than putting in the time and effort necessary to find diverse candidates, with 10% of companies surveyed saying they did not have succession plans at all.
“A last-minute, reactive approach to board succession planning impedes effective recruitment and tends to leave diversity efforts on the back burner,” Moats and DeNicola wrote.
Additionally, the U.S. Chamber of Commerce says that the board must be behind a commitment to diversity to avoid tokenism and making new, more diverse members feel isolated and like they can’t make a meaningful impact.
“Think of the current board as a Thanksgiving table,” Sophia Shaw of Northwestern University’s Kellogg School told the Chamber. “Many delicate topics are being avoided to keep the peace. When somebody invites a new member to the table, whose traditions or assumptions may be different from the status quo, this can bring to light underlying biases or differences in opinion that have lain under the surface.”
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