California law says corporate boards must include women
Publicly held corporations in California must include women on their boards, thanks to a bill signed into law by Gov. Jerry Brown, Sunday. In a statement, the outgoing governor acknowledged some legal concerns raised by the legislation, but he cited “recent events in Washington” as one reason he signed the bill, and wrote that “given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.” Marketplace’s Lizzie O’Leary discussed the new law with Jena McGregor of the Washington Post. The following is an edited transcript of their conversation.
Lizzie O’Leary: Give me a rundown of what this law is and who will be affected by it.
Jena McGregor: So California Gov. Jerry Brown just signed into law a bill that lawmakers there have been trying to get through for a long time to actually require companies that have their principal offices in California, to have what will start with at least one female director on their board.
O’Leary: Do most boards include women already? How unusual is it either to have women on boards or not have women on boards?
McGregor: Particularly large companies, most have a woman on the board. Large publicly traded companies. But their numbers show that about 25 percent of publicly traded headquartered companies in California, do not have any women. So they’re trying to fix that issue through having a mandate of sorts. It will grow over time, over the next couple of years, they’re going to add to it, where it’s not just one that you’re required to have, but depending on the size of the board, they want you to have one, two or three [women]. And really most companies are probably going to need to have three, that are headquartered in California.
O’Leary: What happens if your company is headquartered in California but, say, you’re incorporated somewhere else? Does this still apply?
McGregor: That’s the big question here. So they have put through this bill, but there are both business groups in California, some corporate governance experts including former members of the SEC have said, you know what, this may not fly. This may face some legal challenges because many, many, many companies are actually incorporated in Delaware, which is a state that has a little friendlier business environment. And the law has said, “those are the legal circumstances under which a company has to follow.” And so it may not apply. So this law may face some legal challenges from companies who say this shouldn’t matter.
O’Leary: When Gov. Jerry Brown was talking about this, he referred to “recent events in Washington.” And you wrote about the Brett Kavanaugh hearings in the Senate Judiciary Committee and sort of the appearance of having a female prosecutor there in the room. How much of this is about appearance and how much is about change in corporate governance?
McGregor: Well I have seen the same question of whether he is trying to make a statement particularly this week, although this was the deadline — end of September — for deciding to sign it into law. So was this a way of making a statement of what the country has been engaged in a major national conversation about?
O’Leary: Yeah.
McGregor: The issue of whether having more women on the board has any impact is a good question. There is a lot of research that shows it does have a good impact. That it leads to either higher returns or better decision-making or better priced mergers. Yet, the question is, how do you do it? Do you actually require them to do it? Do you have incentives for them to do it? Do you do it through, kind of, public shaming? And so what is the best approach to getting more diversity on the board or getting more diversity in a room full of any decision-makers?
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