Posted on February 4th, 2019
California has once again put the onus of solving social issues on the back of
California is now the first state to mandate that publicly traded corporations must seat women on their Board of Directors (BOD).
Is this a move in the right direction to bridge the opportunity gap for women or is it just another government overstep into business?
SB 826, which will go into effect in 2019, is specific in its requirements.
By December 31, 2019, all companies impacted by the ruling must have at least one woman seated on their board.
In 2021 that number is doubled for companies with five directors.
If a company has six or more directors they will be required to have a minimum of three female board members.
Failure to comply will result in penalties starting a $100,000, and increasing on subsequent infractions for noncompliance.
To learn more about the effects this law will have on company boards, keep reading.
What are Corporate Boards?
Also known as the Board of Directors, they are a group of business professionals assigned to protect the shareholders’ assets.
Board members have the greatest amount of authority when it comes to how a company is run at its highest level.
Shareholders elect members to the board and also have the power to remove them. Boards operate under bylaws that define terms, roles, and responsibilities.
Members of the board can be employed by the company or individuals from outside.
It’s estimated that a large portion of corporations with headquarters in California already have at least one woman on their board.
Publicly Traded Corporations
The new California law in its current form impacts corporations that are publicly traded. These are companies that trade their stocks on the four major US stock exchanges.
The Effect on Company Boards
The immediate impact the California law will have is there will be more female board members. The concern for
For companies that already have women on their boards, the law will have a minimal effect.
The biggest impact will come in rewriting the bylaws to incorporate verbiage regarding the new law.
Legal teams will need to ensure company boards are in full compliance.
Things to address include scenarios where a board’s incorporation calls for a certain number of members.
If you have all men on the board do you remove male members to make room for the required number of women?
Or do you rewrite their bylaws to increase the size of the board?
You will also need to consider the financial impact. Board members receive compensation for their roles, some also receive stock in the company.
Compensation can range from 10s of thousands of dollars to the high millions.
The Pros
California’s new law is generating a lot of buzz as other states take notice and wonder if the changes are headed their way.
The biggest argument in support of the law is that it will open new doors for women in business. It will show their ability to run large corporations and demonstrate that women are just as capable as men.
Without a doubt, having diverse views add depth and dimension when it comes to addressing policies.
The argument
But is that really something the State should be mandating?
How we run our
Some experts believe that having women on company boards have proven to be beneficial to a company’s bottom line. Research has also shown that businesses show superior sales growth when women are at the helm.
Many believe it is simply time for America to place emphasis on cultural change.
The Cons
There’s a saying “if it ain’t broke don’t fix it.” Of course, this depends on which side of the argument you’re on.
The debate over enacting a law to force company boards to add women is not about being against equality.
It is more about the government once again intervening in business affairs.
If you asked any business owner if there is a ploy to keep women off of boards, they will declare that their boards consist of the best people. Gender is totally irrelevant.
This is the reason many people believe enacting this law will not necessarily bring the best people and
There is a fear that boards will simply select a woman to satisfy the requirement. The law requires women to be added but does not provide much protection for them holding on to the seat.
Requirements of the law also add an additional burden on corporations in their quest to become compliant.
An example, in cases where a board currently has five members, making allowances to add a woman will push the board into a situation where they now need three women instead of two.
Although the law is about equality, some may feel it will lead to discrimination if men with better credentials are overlooked.
Another concern is activism. Some may be wondering if this is an orchestrated effort to get activists among the female board members to push other agendas.
Potential of Overturning the Law
Big legal changes may be on the horizon to challenge this and other California laws. There is a belief that the challenges are less about diversity and more about the growing agenda of the Me Too Movement.
Among the possible challenges is the law enforces quotas, which can lead to discrimination. Not just discrimination against men, but also prioritizing women could affect marginalized minorities and people with disabilities.
There could also be challenges to both the California constitution and the US Constitution.
California prohibits discrimination based on gender and the 14th Amendment provides protections when it comes to gender classifications.
The big question is which major corporation wants to wage this battle.
If they do, could they survive the public backlash?
What Are Your Thoughts?
We cannot deny that equality on all levels is needed. But more companies are hiring women for their company boards organically.
Only time will tell if this move will garner the results the bill intended. But we do know its one more thing California employers have to deal with.
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