Recently, California legislators passed a bill which would require any publicly traded companies based in California to have female directors on their boards. If signed by Governor Jerry Brown, this bill will require those publicly traded companies based in California to add at least one female to their boards by the end of 2019. Additionally, those companies with a board of five or more directors must have two or three females added by the end of 2021.
This law is modeled after several European countries’ laws which require publicly traded companies to have female directors. However, if passed, California will be the first state to have such a law on the books. (Currently, Massachusetts and Illinois have passed non-binding resolutions urging public companies to balance the gender representation on their boards.) Hannah-Beth Jackson (D), who represents Santa Barbara in the California state Senate told the Wall Street Journal that one-quarter of boards for publicly traded companies based in California are entirely male. This is “despite numerous independent studies that show companies with women on their board are more profitable and productive,” stated Jackson.
The law does not require male directors to be removed from the board, but instead allows for the creation of an extra board seat to be filled by a female director. There are other issues which could present themselves if this law is passed, though. One such issue arises when a publicly traded corporation uses cumulative voting for directors. In those companies, whether shareholders will only be allowed to put a fixed portion of their votes towards male versus female directors is unclear. Presumably, companies will have to update their voting procedures to ensure compliance with this potential law.
The California Chamber of Commerce has objected to this mandate, arguing it could violate the Equal Protection Clause of both the United States and California Constitutions. According to the Chamber of Commerce, if a company is put in the position of turning down or removing altogether a male board candidate in favor of a female candidate solely based on gender, the company may risk an Equal Protection violation suit.
While this potential law is currently only being aimed at publicly traded companies, if passed and successful in operation, it may be expanded to private companies and those which are closely held. Similarly, if California is able to demonstrate the success of this type of law, other states may be inclined to follow suit.