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Law Requiring Female Board Members is Challenged

— January 3, 2020

Law mandating boards have female members is met with criticism.

In September 2018, California became the first state to mandate that every public company in the state have at least one female director by the end of 2019.  Now that the end of the year is nearing, if companies fail to comply with that mandate, they face a one-time fine of $100,000.  By the end of 2021, the law’s requirements go one step further and require companies with five board members to have at least two female directors and at least three on six-person boards.  If companies don’t comply, they can face a $300,000 fine for every seat that should be filled by a woman.

The law was signed by former Democratic Governor Jerry Brown.  It follows in the footsteps of European countries which instituted similar mandates over the decade ago.  Norway becoming the world’s first country to put in place a gender quota in 2008, followed by France, Germany, Spain and Italy.

Law Requiring Female Board Members is Challenged
Photo by Drew Beamer on Unsplash

Two lawsuits have already been filed in 2019 arguing California’s law “is unconstitutional because it seeks to force shareholders to perpetuate sex-based discrimination,” according to one of the plaintiffs, Creighton Meland Jr., a shareholder in OSI Securities.  And, thirty to sixty companies, mainly recent start-ups in technology and the biotech, still haven’t added a woman to the board.  For these younger companies, the shift can be quite expensive.  It is also difficult, some say, to find qualified female candidates when, historically, the executive pools companies have pulled from were largely male dominated.

“We’re trying to teach boards to let us introduce ‘board-ready’ women,” said Jeanne Branthover, a managing partner at the executive-level recruiting firm DHR International. “They’re qualified and they’re ready.”

“Other companies have put forward women within their own network,” Kathleen Kahle, a professor of finance at the University of Arizona, said. “In many cases, the woman that was added was someone who was already a company insider.  So, maybe the legal adviser or, on the biotech companies, often some sort of doctor.”

“Board seats are being redefined as functional roles instead of everybody being former CEOs and CFOs who don’t have deep knowledge of certain functions,” said Robin Toft, founder of the San Francisco-based Toft Group Executive Search.

The California law has compelled other states to follow suit, including New York and New Jersey, two states considering similar mandates regarding requiring some board members be female.

“You know, there’s that old saying, ‘One woman is a presence, three is a voice,’” said Joan Lamm-Tennant, who serves on the boards of AXA Equitable Holdings, Element Financial Management Corp. and Ambac Financial Group.

A recent report published by Deloitte entitled ‘Women in the Boardroom’ indicated it will take “at least 30 years for boards of directors to achieve gender parity globally if the current rate of progress continues.”  The report also indicates,” Women hold 16.9 percent of board seats worldwide; Women hold only 5.3 percent of board chair positions and 4.4 percent of CEO roles globally; and Women hold 12.7 percent of CFO roles globally – nearly three times that of CEO positions.”

It continues: “No. 1 Norway, No. 2 France, and No. 6 Belgium all have gender quotas and have reached 40.1%, 37.2%, and 30.5% female representation on boards, respectively….No. 3 Sweden (33.3%), No. 4 Finland (31.9%), and No. 5 New Zealand (31.5%) have reached the top tier without quotas. Instead, they’ve sought to address diversity efforts through “self-regulation and/or corporate governance code recommendations.”


California Companies Are Rushing to Find Female Board Members

Women in the boardroom

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