California bill mandating gender quotas for corporate boards heads to governor

A bill that would make California the first state in the nation to mandate gender quotas for corporate boards is headed to the desk of Gov. Jerry Brown after winning approval Thursday in the state Senate.

Senate Bill 826 would require every publicly held company with its principal executive office in California to have at least one woman on its board of directors by the end of 2019. Corporations with five directors would be required to include two women by the end of 2021.

Boards with six or more directors would be required to have a minimum of three women by July 2021 or face financial penalties.

The bill’s sponsor, Democratic state Sen. Hannah-Beth Jackson, said after Thursday’s 23-9 Senate vote that the “time has come for California to bring gender diversity to our corporate boards.”

“One-fourth of California’s publicly traded companies still do not have a single woman on their board,” she said in a statement. “With women comprising over half the population and making over 70% of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions, and profitability.”

Supporters of the bills argued that California boards are less diverse than those in other states. About 15.6 percent of board seats in the state’s publicly traded corporations are held by women, versus 16.2 percent nationwide.

A female board member need not be a biological woman.

” ’Female’ means an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth,” according to the legislation.

Companies that fail to comply with the quotas would be subject to significant fines: $100,000 for the first violation, and $300,000 for the second and third infractions.

Opposing the measure was a 30-member business coalition led by the California Chamber of Commerce, which argued that the bill likely violated the U.S. and California constitutions as well as the California Civil Rights Act, “which places California companies in a legal predicament.”

The coalition said the bill would force companies to displace male board members “solely based upon gender,” while supporters argued that corporations could simply add more seats to their boards.

“Gender is an important aspect of diversity, as are the other protected classifications recognized under our laws,” said the chamber coalition in a May 29 statement. “We are concerned that the mandate under SB 826 that focuses only on gender potentially elevates it as a priority over other aspects of diversity.”

Supporters denied that the bill was anti-business, pointing to a 2017 MCSI study that found U.S. companies with at least three female board members had earnings 45 percent higher than corporations with no female directors from 2011-2016.

“Adding women board members to our public corporations will help advance family-friendly policies in the workplace and bring California one step closer to gender equity,” said Anne Staines, president of the National Association of Women Business Owners, California, in a statement.

The bill also directed the secretary of state to report annually how many companies complied with the law, as well as the number that moved their headquarters out of California — or inside the state — during the previous year.

California passed a resolution in 2013 urging companies to add one to three female directors to their boards — a move followed by five other states — but fewer than 20 percent of Russell 3000 corporations had met the minimum number by the end of 2016.

Mr. Brown, who has not taken a public position on the issue, has until Sept. 30 to sign the bill.