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E-MailCydney S. Posner is special counsel at Cooley LLP. This post is based on her Cooley memorandum. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite by Alma Cohen, Moshe Hazan, and David Weiss (discussed on the Forum here); and Will Nasdaq’s Diversity Rules Harm Investors? by Jesse M. Fried (discussed on the Forum here).
With the passage of SB 826 in 2018, California became the first state to mandate board gender diversity (see this PubCo post). To measure the impact of that legislation, in 2020, California’s current First Lady co-founded the California Partners Project. In 2020, the CPP released a progress report on women’s representation on boards of public companies headquartered in California, tracking the changes in gender diversity on California boards since enactment of the law. (See this PubCo post.) Now, the CPP has released another report, Mapping Inclusion: Women’s Representation on California’s Public Company Boards by Region and Industry. The new report, the CPP’s third, found “much to celebrate in the progress California has made. All-male boards are a thing of the past—from nearly a third of public company boards in 2018 to less than two percent now—and women hold a record number of California public company board seats.” The report asserts that the “California experiment proves that where there’s a will, there’s a way. Concern that there were not enough qualified women to serve on boards is unfounded.” Most revealing perhaps, the report tells us that, in 2021 “more women have joined California’s public company boards than men, likely for the first time.” But just barely—469 of the 930 directors that started in 2021, or 50.4%, were women. Whether this new statistic is attributable to SB 826 is anyone’s guess—correlation is not necessarily causation and investors and others have also pressured companies on diversity issues—but it certainly helped to dial up the heat.
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SB 826 requires that, by December 31, 2021, all listed public companies headquartered in California, no matter where they are incorporated, include at least two women on their boards if the corporation has five directors and three women directors if the corporation has six or more directors. A minimum of one woman director is required if the board has four or fewer directors.
According to the report, as of September 30, 2021, women held 1,844 board seats at California-headquartered companies, compared to only 766 in 2018—that’s an increase from 15.5% of all public company board seats in California to 29.6%. That left 440 board seats to fill to comply with the mandate. Over half of the companies (54.4%) have already satisfied the California requirement; 33.4% need to add one women and 12.2% need to add two women. Smaller companies tend to have fewer women on their boards; of the 176 microcap companies, women directors accounted for 26% of board seats in 2021, compared to 10% in 2018. A majority of companies have reached what might be viewed as “critical mass”: in 2021, 50.7% of companies examined had three or more women directors—that’s compared to only 11% in 2018.
But it’s not simply a numbers question. Apparently, minds have also been changed. According to PwC’s 2021 Annual Corporate Directors Survey cited in the report, “85% of board directors say that board diversity enhances board performance; 76% of board directors agree that board diversity improves strategy/risk oversight; and only 33% of board directors think board diversity will simply happen naturally, a staggering decrease from 71% in 2020.”
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The 2022 report observes, while women in general are making progress, women of color are less well represented on boards. In 2021, CPP released a report that provided data on women of color on California’s public company boards. The takeaway was that much work remained “to tap all of our talent and achieve racial and cultural equity. Most women on California’s corporate boards are white, while women of color—especially Latinas—remain severely underrepresented.” While, at that time, 18.75% of California company board seats were held by a director of color, 12.1% were held by men; only 6.6% of board seats were held by women of color. But women of color represented 32% of the total state population. Latinas fared the worst: according to the report, Latinas made up more than 19% of California’s population, but held only 1% of the board seats. (See this PubCo post.)
This 2022 report focuses on board gender representation by region and industry. The CPP looked at 525 companies in the Russell 3000 and 227 other publicly traded companies headquartered in California that are not included in the Russell 3000 Index but “play a critical role in the California economy.” The data is as of September 30, 2021.
According to the CPP, 57% of the state’s public companies are headquartered in regions that are among the leaders in gender-diverse boards—the Bay Area and Central Coast. One-third of directors of public companies in San Francisco County were women in 2021. According to the report, 56% of companies in the Bay Area, 60% in greater San Diego and 70% of companies on the Central Coast met the SB 826 end-of-year requirement.
Looking at industry sectors, the CPP reports that women held 36% of board seats in the energy/utilities sector, 33% of board seats in each of the entertainment and retail sectors, and 31% in the tech sector. But women held only 24% of board seats in the agriculture sector, 27% in the restaurants sector and 28% in each of the financial services and the biotech/ pharma sectors. The numbers appear a little different when viewed from the perspective of satisfaction of the SB 826 standard. More specifically, 119 of 202 companies in the tech sector, 41 of 65 in the financial services sector, 6 of 9 in the restaurant sector and 9 of 11 in each of the energy and utilities/entertainment sectors met the SB 826 standard, but only 1 of 6 in agriculture, 92 of 193 biotech/ pharma companies, and 44 of 97 companies in the healthcare sector met that standard.
What does the CPP take away from the disparity across industries? The CPP uses that data to dispute the frequent assertion that the deficit of women on boards is a “pipeline problem,” meaning that too few women are rising through corporate pipelines to be qualified candidates. While boards may seek some candidates with industry-related skills, other important areas of board expertise are more universal, the CPP suggests, such as risk management, cybersecurity, marketing, environment, human relations, public affairs or operational management. Instead of a pipeline issue, the CPP contends, to the extent that “some industry sectors are accessing diverse talent more broadly than others, cultural factors and limited networks may be to blame. CPP focus groups with business leaders found that miscalculation of risk, restricted personal networks, and valuing titles over skills were common barriers to producing diverse boards. With focus and commitment, those are challenges that can be overcome.”
