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How Boardroom Diversity Has Evolved in the #MeToo Era: QuickTake

Oct. 19, 2021, 12:40 AM

Efforts to increase the percentage of women on corporate boards in the U.S. achieved a milestone this year, with the figure reaching 30% for companies in the S&P 500 Index, among the nation’s largest by market capitalization. Studies suggest that having female directors leads to more innovation and better business outcomes, among other benefits. One of the biggest catalysts for change in the U.S. has been a 2018 California law establishing the first gender quotas for boards in the country -- more than a dozen years after such laws were introduced in Europe. Now, California’s law is under attack in the courts. Yet there’s growing consensus that the trend the law set in motion has sufficient momentum to survive without it.

1. How well are women represented on boards in the U.S.?

After a decade of pushing for women to occupy at least 20% of corporate board seats, the advocacy group 2020 Women on Boards this year changed its name to 5050 Women on Boards to emphasize the need to reach parity for women, who make up about half of the U.S. workforce. The group met its initial goal, which related to Fortune 1000 companies, in 2017. A second target was exceeded in 2019 when women held more than 20% of board seats for 3,000 of the largest U.S. public companies that make up the Russell 3000 index. Still, among those companies, more than 100 still lack even one female director, according to 5050 Women on Boards. Bloomberg data show that women are at parity or better on fewer than 20 S&P 500 boards and hold the leadership position at just slightly more than two dozen boards. Executive recruiter Heidrick & Struggles estimates gender parity in the Fortune 500 won’t come until 2032. The group doesn’t have a similar analysis for the S&P 500.

2. What’s the California law do?

Enacted amid the #MeToo movement, SB 826 required public corporations based in California to have at least one woman on their boards by 2019. By the end of this year, boards with five members must have at least two female directors, and boards with six or more members must have at least three female directors. Penalties for violations range from $100,000 to $300,000.

3. How has it changed things?

When the law was passed, almost a third of the corporate boards in California were all-male. That share has dwindled to about 2%, according to the California Partners Project, a women’s advocacy group. Women hold 1,483 seats on California boards, compared to 766 spots in 2018, according to the group’s current tally. Still, that’s only about 27% of seats among California companies. More than 400 companies will have to add one or more women this year to be in compliance with the law. Members of some all-male boards have previously suggested that the absence of women was a reflection of a dearth of candidates. But the hundreds of new female directors appointed at California companies demonstrate that there are many candidates — and those appointees are in a powerful position to recommend other women for open seats. The gender-quota law has been so successful that California passed an almost identical law that will require boards to add racially and ethnically diverse members by the end of this year.

4. What have other states done?

The state of Washington in 2020 enacted legislation requiring public companies to ensure by January 2022 that at least 25% of their directors self-identify as women. But rather than face a penalty for non-compliance like in California, companies are required to disclose the level of diversity on their boards. Some states, including Maryland and Illinois, require all companies to make such disclosures.

5. What’s the basis for challenges to the California law?

Essentially, reverse discrimination. Judicial Watch, a conservative advocacy group, filed a complaint on behalf of California taxpayers. It alleges that the law runs afoul of a 1996 voter-approved provision of the state constitution prohibiting the government from discriminating against or granting preferential treatment to individuals or groups based on race, sex and color. The group is urging a judge to void the mandate; a trial is set for Dec. 1 in Los Angeles Superior Court. A separate lawsuit has been brought in federal court in Sacramento by an investor in a medical device maker. It alleges that the gender quota “seeks to force shareholders to perpetuate sex-based discrimination.” Creighton Meland Jr., a shareholder of OSI Systems Inc., is asking a judge to rule that the law violates the “equal protection” clause in the 14th Amendment of the U.S. Constitution, which requires that state laws treat people in the same circumstances alike. A hearing on Meland’s request for an injunction to temporarily block the law is set for Oct. 19.

6. What if the California law is overturned?

Even without it, multiple initiatives will keep the pressure on companies to reach gender parity among board directors. Large investors such as BlackRock Inc. and State Street Global Advisors now vote against sitting directors on all-male boards to pressure companies to name women. Goldman Sachs Group Inc. will no longer underwrite initial public offerings for companies that lack at least two diverse members. Among the largest IPOs in 2020, only one board lacked a female member, according to 5050 Women on Boards. Nasdaq Inc. has won regulatory approval to require its index member companies to begin disclosing the gender, ethnic and racial diversity of their boards over the next year. Within five years, companies must either meet minimum diversity standards or explain their inability to do so. That rule faces a legal challenge by a group led by Edward Blum, the longtime conservative activist and affirmative-action foe who previously sued unsuccessfully to stop Harvard University from taking race into account in admissions decisions.

7. How does the U.S. compare with other countries?

Norway became the first country to legislate gender balance on corporate boards and reached a target in 2007 of having no board of more than nine members filling fewer than 40% of its seats with either sex. By 2020, 42% of board directors in Norway were women, while in France, which adopted a 40% quota for women directors in 2011, the figure was 43%, the group European Women on Boards said in a report last year. Belgium, Italy, Germany, Portugal and Austria also have binding quotas for women on boards. Greece adopted a 25% quota that took effect in July for companies on the Athens Stock Exchange. The popularity of quotas helps explain why, as of September, almost 37% of board seats in Stoxx Europe 600 companies were held by women, according to Bloomberg data. Similar to the pressure from Wall Street institutions, the U.K-based fund Legal & General Investment Management this year adopted a policy of voting against directors on S&P 500 boards with less than 25% female directors. Still, the growth in women directors in Europe isn’t guaranteeing more power for women elsewhere in companies, as fewer than one in 10 board chairs or CEOs are women, according to the European Institute for Gender Equality. The European Women on Boards study similarly found that only about 14% of jobs in the c-suite went to women.

The Reference Shelf

  • A related QuickTake from 2017.
  • The California Secretary of State’s report on female representation on boards.
  • A McKinsey & Co. study on women in the workplace.
  • An overview by Harvard Law School Forum on Corporate Governance of diversity disclosure requirements.

To contact the reporters on this story:
Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net;
Malathi Nayak in San Francisco at mnayak21@bloomberg.net

To contact the editors responsible for this story:
Katia Porzecanski at kporzecansk1@bloomberg.net

Peter Blumberg, Lisa Beyer

© 2021 Bloomberg L.P. All rights reserved. Used with permission.