Calif. Mandates Diverse Board: Why Quotas Are Needed
California again seeks to lead the way for the other states and national policy makers with a new law requiring public companies based in the state to have one racially, ethnically or otherwise diverse director by the end of 2021. Two years ago California adopted a law requiring at least one female director on all public companies in the state. The required number of women directors escalates over time.
I dislike one-size-fits-all solutions as much as anyone, but I support these mandates as a forcing mechanism made necessary by the intransigence and myopia of a sizable minority of companies and boards that perpetuate white boys clubs at the top. The law on women directors was enacted to expand opportunities for women but also to improve the ability of companies to address a number of issues including sexual harassment and women’s employment. The diversity law does the same. California is now “majority minority” with whites representing less than 50% of the state’s residents. In the era of Black Lives Matter and a renewed commitment to employees of all gender and races, and all stakeholders, no all white board is acceptable – or wise.
Many companies long ago realized that women and minority members brought essential and diverse perspectives which were lacking on all male, all white boards. But cultural bias and dishonest claims of “can’t find anyone qualified” will persist if there are no mandates. Foot dragging will hold back the progress that is needed now.
These laws are irrelevant to the two-thirds to three-quarters of California’s 513 company boards that already have female and diverse representation. One research firm has stated that 185 of California’s 513 public company boards (36%) do not meet the diversity requirement. It was estimated that about 20% of public boards had no women directors when the first mandate was adopted two years ago.
California’s laws do not bind companies which are not California-based, but any which operate in California would be wise to follow these guidelines. And policy makers elsewhere, particularly in Delaware where many large companies are incorporated, would be wise to reinforce the California mandate with their own.* And investors concerned about the ability of a company to navigate a complex market and public policy environment going forward should apply their own scrutiny to the boards of all firms in their portfolio.
*Delaware law now encourages diverse perspectives on boards, and permits companies to have their own quotas, but does not require them. See legal briefing linked below.
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