How a New Law Could Help Women in Corporate America – Without Being Implemented

By Lauren Rowley

Women are graduating college faster than men (3:2), and are entering into the workforce with GPAs that, on average, leave men behind. Even so, women make up less than 14 percent of Fortune 500 board seats. Women have a unique perspective to offer to corporate America — in fact, studies show that companies that utilize women in boardrooms tend to see a profit increase and are much more likely to outperform competitors.

So with such potential, why are boardrooms all over the United States proving to be insufficiently diverse when it comes to gender? California is one state not waiting for an answer to this question. Seeing that these companies are overlooking what could be a huge asset to their corporate strategy, a new California law is trying to find a solution.

What is the Bill Trying to Do?

On Oct. 1, California Governor, Jerry Brown, signed California Senate Bill 826. This bill, authored by state Sen. Hannah Beth Jackson and Senate President Toni Atkins, requires that all publicly traded companies that are based within the state must have at least one woman on their boards of directors by the end of 2019. And it doesn’t stop there – by July 2021, boards with five seats must have at least two women and boards with six or more members must include at least three. If companies do not comply with this new regulation, they will face fines of up to $300,000.

Annalisa Barrett, a finance professor at the University of San Diego, noted in the Los Angeles Times that this law is no small task. For just the 377 California-based companies that rank among the 3,000 largest in the nation, 684 women will be needed –  and even more, will be needed to fulfill the law for smaller companies.

While this sort of “quota law” may be a novelty to Americans, laws similar have been implemented in European nations for over a decade. In 2008, Norway passed a law that required companies there to give 40 percent of board seats to women, making them the first country to implement a quota law. Germany, Sweden, Iceland, Italy, and France have also implemented fine-based policies to guarantee representation for women in business governance. Many of these countries have found the policies to be successful, seeing that a stated law forces diversity to be more of a priority. This diversity helped foster conversations and corporate culture that identified the values and needs of different stakeholder groups from a variety of backgrounds.

The Reality of Implementation

Although other countries may have seen success with this sort of protocol, this bill has been faced with much scrutiny over the past few weeks. Dozens of business groups, such as the California Chamber of Commerce, have spoken out openly in opposition to the law. Some of the primary critiques have been that the law could potentially displace current board members simply because they are male and that the law too narrowly focuses on gender rather than on other elements of diversity like race and sexual orientation. Law critics have claimed that this law may not even meet legal standards if questioned in court, due to constitutional protections of equal treatment. Even Gov. Jerry Brown claimed he is skeptical of the law’s realistic feasibility – in a statement that accompanied his signature, he explained that he was not trying to “minimize the potential flaws that indeed may prove fatal to its ultimate implementation,” but went on to say that,  “nevertheless, recent events in Washington, DC — and beyond — make it crystal clear that many are not getting the message.”

Brown made it evident that he was advocating to bring light to an injustice rather than to see a successful implementation of the law.

Where Are the Women?

So while this bill may not be realistic enough to see actual results, it has already shed light on the severe underrepresentation of women on corporate boards around our nation and opened new conversations about solutions.

According to Catalyst, a nonprofit that focuses on promoting women in business, women make up only 20 percent of S&P 500 Company board seats, and the number of female Fortune 500 CEOs dropped 25 percent in 2018 alone, making the grand total of female CEOs 24.

Although these numbers are low, research has shown that having women in corporate leadership positions can actually help a company’s performance. Through surveying 21,980 firms from 91 countries, a Peterson Institute Study proved that, on average, if a company went from no women in leadership to 30 percent representation, overall profit would increase by nearly 15 percent. In addition, McKinsey, a global management consulting firm, found that companies with more gender diversity are 15 percent more likely to outperform competitors. This data shows that women are an untapped resource and that if companies choose to harness their potential, they could see substantial change within their organization.

Due to these staggering statistics, the point of “quota laws” is to require companies to look outside of their normal practices to find unique candidates. Women have a perspective that they can bring to the table that differs from that of men who are commonly at the head of corporate boards and can, therefore, add fresh insight and new ideas to company leadership.

If we simply wait around and assume that one day corporate culture will become diverse, we may be waiting a long time. Waiting is not satisfying for groups who are wanting to be better represented today, and laws like Bill 826 acknowledge their feelings of frustration. This law has brought to light an area of inequality and is working to take strides towards a better workforce. Serena Fong, a vice president at Catalyst, may have said it best:

“If nothing else, what this law is doing is increasing the visibility and corporate boardroom awareness on the issue itself and the importance, and that is a win in and of itself.”

Moves towards equality, no matter how small, are always a win, and we should continue to think strategically about how our culture can close the gender gap. Gender equality is an issue that everyone should be focused on. Enabling women to be equals in business settings not only makes economic sense, but it is equitable for the common good. Stanford Director Shelly Correll said,

“Gender equality, like clean air, is a social good that benefits us all.”