Legislation to require California-based public companies to fill at least one of their board seats with a woman by the end of 2019 picked up the backing of the Los Angeles County Board of Supervisors Tuesday.
Supervisors Hilda Solis and Sheila Kuehl recommended supporting Senate Bill 826, saying that 25 percent of California public companies large enough to be listed in the Russell 3000 index have no female directors.
The motion by Solis and Kuehl cited quotas in Germany and Norway, where 30 to 40 percent of board seats are required to be filled by women.
Advocates said putting women on boards leads to better outcomes for both shareholders and workers.
“Research studies have shown that when women are on corporate boards, especially when three women are on boards, that companies perform better, are more productive and treat the workforce also very well,” said Betsy Berkhemer-Credaire, co-founder of an executive search firm.
She and others pointed to a study by Credit Suisse finding that women on boards improve stock performance and other key business metrics.
Shares of companies with a market capitalization of more than $10 billion ,with at least one woman on the board, outperformed comparable businesses with all-male boards by 26 percent worldwide, based on the bank’s study of performance from 2006-12. The impact was greatest in companies operating in the Asia-Pacific region and least evident among European companies.
Board seats held by minorities and women are on the rise and made up half of all new seats filled by S&P 500 companies in 2017, according to a survey by executive search firm Spencer Stuart. But the sponsors of SB 826, Sens. Hannah-Beth Jackson, D-Santa Barbara, and Toni Atkins, D-San Diego, point to research showing that it may take 40 to 50 years to reach gender parity.
The state Senate’s Committee on Banking and Financial Institutions, which was the first to provide an analysis of the bill, warned of potential unintended consequences, including an adverse impact on minority board representation and the possibility of a less-qualified woman being named to a board over a more qualified man.
The quota system might also result in “overboarding,” where one very qualified woman sits on three, four or more boards and her attention is spread too thin, the committee noted.
The California Chamber of Commerce opposes the bill, which it says may amount to job discrimination that could be ruled unconstitutional.
In an article on its website, the chamber also cited a survey of gender quotas by The Economist magazine that concluded “the evidence so far … undermines the business case for quotas. Studies from at least six countries on companies’ performance, decision-making and stock market returns fail to show that quotas make a consistent difference, good or bad.”
The bill as currently drafted would require companies to ramp up the number of women directors over time. By the end of 2021, companies with six or more directors would be required to include a minimum of three women. For five-person boards, two female directors would be mandated. Those with four or fewer directors could comply by having just one female director.
Companies could be subject to fines equivalent to annual cash compensation for a director on a first violation and three times that amount for a second violation. The average base pay for directors at the largest 500 U.S. companies was $245,000 in 2016, according to a study by executive compensation firm Equilar.
The board’s vote was 3-0, with Supervisor Kathryn Barger abstaining and Supervisor Janice Hahn absent.
The bill is still in the committee process.