Will Corporate California Go The Way Of Quotas?

Thursday, September 13, 2018
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Editors note: This article was first published on September 6th, 2018 and republished September 13th, 2018. 

In the spirit of the adage “let’s keep politics out of the bedroom,” what about California’s government intervening in the boardroom?

That’s the question facing California Governor Jerry Brown as he decides whether to sign a measure that sets quotas for the number of women serving on the boards of publicly-traded companies headquartered in America’s nation-state.

Senate Bill 826, which is a top priority for the California Legislative Women’s Caucus this year, dictates that corporate boards of directors in the Golden State include at least one woman by the end of 2019.

Boards with at least five directors will need two or three women (depending on board size) by 2021.

Companies that fail to comply could be penalized $100,000 for a first-time offence and up to $300,000 by California’s secretary of state.

The argument for the mandate? The bill’s sponsor, Democratic State Senator Hannah-Beth Jackson explains: “One-fourth of California’s publicly traded companies still do not have a single woman on their board, despite numerous independent studies that show companies with women on their board are more profitable and productive.”

She adds: “With women comprising over half the population and making over 70 percent of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions and profitability.”

The argument against? Not unlike California’s experience with quotas in higher education, which led to the passage of Proposition 209 back in 1996, the fear is social engineering in boardrooms will ricochet against under-represented groups—Latinos, African,Americans, Asian Americans—as women get highest priority for board appointments (before she became First Lady, Michele Obama served on the board of TreeHouse Foods, a supplier for Wal-Mart Stores; former vice president Al Gore currently sits on Apple’s board).

If SB 826 becomes law, California becomes the first state in the nation with such a board requirement. To date, legislatures in other states have gone down a more symbolic path. Last year, Pennsylvania lawmakers passed a resolution urging public and private companies to have at least 30 percent female board representation by 2020).

Let’s say Gov. Brown signs the measure. What’s the impact among some of California’s higher-profile companies?

Let’s start with a few big names in Silicon Valley.

Apple’s eight-member board included two women. Facebook counts two women among its nine directors. Alphabet, the parent company of Google, has eleven directors, only two of them women. So all would have work to do if SB 826 becomes law (not that Apple, with its $1 trillion valuation, couldn’t afford the occasional six-figure fine).

Now let’s look at some high-profile companies that are not associated with the tech economy.

Disney has four women on its ten-member board of directors. Wells Fargo has twelve board directors, five of them women. Kaiser Permanente shows five women among its fourteen board members. So there are companies in California that, when it comes to gender and diversity, are literally a step ahead of the law.

Does this suggest that the legislature’s stab at gender-equity is a little unwieldy? Yes and no.

On the one hand, California has eighty-six companies in the Russell 3000 Index that had all-male boards as recently as the second quarter of 2018—according to Equilar research cited by the Wall Street Journal. Among the more notable offenders: San Jose-based TiVo and Skechers, which calls Manhattan Beach home.

On the other hand, (again, this is Equilar data) most public companies in California with annual revenues in excess of $5 million already meet the one-woman requirement. If SB 826 were to be enacted, only one in five boards would be out of compliance.

It should be noted that, while the state legislature tries to elevate the status of women in the workplace, it’s falling down on the job back in Sacramento when it comes to balanced representation at the top of the pyramid.

Yes, the state senate’s two leaders are women (that would President pro Tempore Toni Atkins, a Democrat, and Minority Leader Patricia Bates, a Republican).

But over on the state assembly side, it’s a different story.

Add in the chamber’s chaplain, chief clerk and sergeant-at-arms and the assembly has a total of fifteen “leadership” slots. At present, only two are held by women (Assistant Speaker pro Tempore Laura Friedman and Assistant Majority Whip Eloise Gómez Reyes).

If that sounds a little schizophrenic . . . well, then so too is the presence of women in statewide California politics.

Only the Golden State can claim two female US senators serving continuously in Washington since 1993—the 1992 election being a much-ballyhooed “year of the woman,” with more women sent to Congress than ever before. (By the way, the phrase “year of the woman” has been applied to at least nine elections over the past half century.)

Once the votes are counted in November, California’s likely to have women in charge of three of the state’s seven constitutional offices (lieutenant governor, state treasurer and state controller). At present, there’s only one: State Controller Betty Yee.

On the executive side, eleven California agencies comprise the governor’s cabinet (here’s an organizational chart). Of those elevent, four are run by women (the state’s Departments of Finance and Food and Agriculture, California’s Government Operations Agency, and its Business, Consumer Services and Housing Agency).

Women figure prominently in Jerry Brown’s inner circle. California First Lady Anne Gust Brown arguably is the governor’s most trusted confidante. When Chief of Staff Nancy McFadden lost her battle with ovarian cancer this past March, Brown replaced her with Diana Dooley, a former Health and Human Services secretary who also served as Brown’s legislative director during his first stint as California’s governor.

Then again, it’s the most powerful office in the state that maintains the toughest glass ceiling.

In 1990, Dianne Feinstein came within 3.5 percent (roughly 267,000 votes) of becoming California’s first governor (two years later, she became a US Senator). Meg Whitman (the GOP nominee in 2010) and Kathleen Brown (Jerry’s sister and the Democratic nominee in 1994) both lost by double digits in their respective runs.

In California’s June “open” primary (“open” in that all candidates were on the same ballot, with the top-two finishers advancing to the general election regardless of party affiliation), thirty-two gubernatorial candidates received votes. Of those thirty-two, only five were women. Together they received but 5.3 percent of the primary vote (in California, women account for an estimated 54 percent of likely registered voters).

One could argue that this is an apples-and-oranges discussion—comparing the outcomes of popular votes to corporate and political appointments. But if lawmakers want to force Corporate California into giving women a more prominent role in the lives of their businesses, so too should the legislature be in the business of elevating more women into roles of leadership.

Call it leading by example.