Amid an increasing focus on the representation of women on public boards, California Governor Jerry Brown (D) signed legislation that will require publicly held companies whose principal executive offices are in the state to have a minimum number of women on their boards of directors.
As previously reported, Boards must have one woman on their boards by the end of 2019, and at least two female directors by the end of 2021 if the company has five directors. If a company has six or more directors, at least three of them must be women by the end of 2021. Companies who fail to comply will be penalized $100,000 for the first violation and $300,000 for a second or subsequent violation. Companies who fail to comply will be penalized $100,000 for the first violation and $300,000 for a second or subsequent violation.
Fate of Provision Uncertain.“It’s high time” corporate boards include women, Gov. Brown remarked, yet he also acknowledged in his signing statement that “serious legal concerns” have been raised about the bill that “may prove fatal” to its implementation, including a challenge to whether it imposes an unconstitutional discriminatory quota. In addition, many commentators have questioned the scope of the mandate, given that it applies to all companies headquartered in California, even if they are chartered elsewhere.
Board Gender Diversity Is Already Improving. Almost three-fourths (329) of the 446 companies in the Russell 3000 that are headquartered in California already have women on their boards, though 392 have fewer than three women on their boards. Other states have approved nonbinding resolutions with a similar aim, but none have passed a law. Germany, Norway, France, Spain, Iceland, and the Netherlands have imposed similar mandates.
Trends are a potential boost for human resources. Corporate boards are already recognizing the value of CHROs as directors given their deep expertise in the nexus of talent and strategy, employee engagement, and other business- and people-related concerns. Given the particularly strong representation of women among human resource C-suite positions, the recognition of the need for greater Board gender diversity could increase CHRO representation on boards, which would have a positive impact for companies as a whole.