California has pioneered a law mandating all publicly listed companies with headquarters in the state to bring in at least one woman on their board of directors by the end of 2019. The bill signed into law on Sept. 30 is aimed at closing the gender gap among big corporations.
By the end of 2021 and moving forward, all publicly listed companies headquartered in the state should have two female directors if they have five directors and three female board of director members if they have six and more male directors. Corporations that will be found guilty of breaching the law will be fined between $100,000 and $300,000.
The law, signed by Governor Jerry Brown, was significantly motivated by calls for gender diversity and a six-year case study from Credit Suisse which found that more than 2,000 companies worldwide have improved their businesses and stock performance when they welcomed more women on board.
In a statement announcing his signing of the new statute, Brown acknowledged that the new bill may face numerous objections and serious legal battles. He, nevertheless, asserted that it is the right time for corporations to be compelled in including women as members of their board of directors, particularly that women constitute more than half the persons in America.
The Los Angeles Times reported that the new bill will affect 377 companies headquartered in the state that are listed on the Russell 3000 stock index. These firms have all-male boards according to Annalisa Barrett, a clinical professor of finance at the University of San Diego's School of Business. If the new bill wins all legal challenges, 684 women are needed to fill board seats for Russell 3000 companies by 2021 according to Barette.
Reuters noted that Apple Inc., Google's parent company Alphabet Inc., and Facebook Inc. are all headquartered in California. This means that these tech giants need to bring in at least one more woman to their boards by 2021.
Indeed, the new bill has already been opposed by more than 30 business groups according to the Los Angeles Times.
The California Chamber of Commerce, one of the bill's critics, said the legislation could violate existing laws, including the U.S. Constitution. The group explained that the bill also seemed to be discriminating as it will compel companies to displace an existing male member of the board of directors based on gender.
Other contentions were that the new bill focuses heavily on gender equality that it could undermine other aspects of workplace diversity. Other business groups argued that corporations are mandated by state laws where the companies were incorporated and not where their headquarters are located.
