SAN DIEGO — Despite ongoing legal challenges, California’s 2018 gender diversity law has helped propel a record number of women into corporate board seats in the San Diego region and statewide, according to a new study.
Women directors at San Diego publicly traded companies rose from 12% to 31% of total board seats since the law — SB 826 — passed three years ago, said the California Partners Project, an advocacy group tracking the impact of the legislation.
Across California, women now hold 29% of public company board seats, up from 15.5% percent in 2018.
“I think it is hard to argue that the law hasn’t had a significant effect,” said Olivia Morgan, executive director and co-founder of California Partners Project. “What this shows is companies have been able to find qualified women candidates for the boards when they move that priority from the back burner to the front burner.”
California was the first state in the U.S. to mandate that public companies have female directors or face fines ranging from $100,000 to $300,000. Washington state also passed a gender diversity law, but it’s more limited, with no fines and exceptions for smaller companies, among other differences.
A handful of lawsuits have challenged the California mandate, including one in Los Angeles Superior Court that is currently in trial.
These legal actions contend the law creates a “woman quota” in violation of the equal protection provisions of the California Constitution and U.S. Constitution. At the time the law passed, then-Gov. Jerry Brown acknowledged that it could raise “serious legal concerns.”
Still, California’s 750 public companies have overwhelmingly accepted the law’s mandates. Only 12 firms statewide currently have no women directors, according to the study. None are based in San Diego.
To date, the Secretary of State hasn’t fined any businesses for violations. Some of the fears around the bill, such as it would drive firms to relocate headquarters or result in “over boarding” where highly qualified women candidates would be pressured to sit on too many boards, haven’t come to pass.
Companies have reasons beyond SB 826 to diversify their boards. It has been a rising drumbeat among institutional shareholders and corporate governance experts, who correlate divergent voices in the boardroom with better performance.
“They have been an important force for progress,” Morgan said. “CalPERS, CalSTRS, Blackrock, State Street and Nasdaq now — Goldman Sachs won’t take you public unless you have a woman or person of color on your board. That pressure has actually been enormously helpful.”
Nasdaq is phasing in new requirements that firms listed on the exchange must have at least two diverse directors — or explain why they don’t in public filings with securities regulators.
As of July, Goldman Sachs said it would not take public any startup that didn’t have at least two diverse board members, including one woman.
When it initially passed, SB 826 required companies to add one female director. But by the end of 2021, it called for increasing the number of female directors to two on five-person boards, and at least three for boards with six or more members.
As of September, 343 public companies statewide had yet to meet the 2021 target, according to California Partners Project. That includes about 35 companies in San Diego County.
But experts expect most will comply by year-end. “Leading up to the first deadline in 2019, many, many companies announced their appointment of a female director in December,” said Annalisa Barrett, a senior adviser with KPMG’s Board Leadership Program.
Most of San Diego’s large companies — Qualcomm, Sempra Energy, Illumina — already have multiple female directors.
It’s smaller firms, including some biotechnology companies, that tended to lack women on their boards, said Barrett.
“One of the unique things about California’s economy is we have so many public companies that are microcap,” she said. “The law applies to those companies as well, and I think that has really elevated the conversation about the benefits of board diversity among microcap companies.”
In June 2018, women held just 74 of 617 total board seats at San Diego public companies.
As of Sept. 30, there were 272 board seats held by women out of 883 total. Today, there are 112 local public companies, compared with 86 three years ago.
“One thing that is interesting in San Diego is we have more than doubled the number of women on boards,” said Jessica N. Grounds, co-founder of Mine the Gap, which consults with C-Suite executives on inclusion. “To me, that is an indication that the talent existed here and across the country for San Diego companies to find qualified women.”
Grounds, a San Diego resident, worked on the California Partners Project study. She also researched the backgrounds of the women statewide who were appointed to boards after the SB 826 passed.
“What I found was 39 percent had MBAs, well over half had C-Suite experience, around 15 percent had multiple graduate degrees,” she said. “So, they were very capable people.”
Yet 62% had never served on a corporate board before, she said.
Experts cite several reasons that women faced hurdles to boardroom appointments. Historically, companies sought directors with profit and loss responsibility at public companies — so CEOs, CFOs or heads of major business units.
“The fact is only 7 percent of Fortune 500 CEOs are women,” said Grounds. “So, if you’re looking at only one category, it is pretty limiting.”
But that thinking has changed over the years. Now people with skills in important areas like cybersecurity, human resources, information technology, global operations, supply chain and so on are getting consideration, which opens the door for more female candidates.
“You are diversifying the skillsets on your board as much as you are diversifying the people sitting at your board table,” said Morgan, the California Partners Project executive director. “You have seen that evolution in terms of ideas of best governance practices.”
San Francisco leads the state for the percentage of board seats held by women at 33 percent. San Diego and Alameda follow at 31 percent. Los Angeles and Orange County came in at 28 percent and 26 percent, respectively.
By industry, energy/utilities ranks first at 36 percent; followed by retail and entertainment, both at 33 percent; technology at 31 percent and construction at 30 percent.