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What California's law to get women in the boardroom means for Silicon Valley

It's not just about helping women. It could also be good for a company's bottom line.

Row of empty chairs in board room

A California law will put more women in the boardroom.

Getty Images

For publicly held companies in Silicon Valley without women on their boards, now might be a good time to start looking for candidates.

California Gov. Jerry Brown signed a bill into law Sunday that requires publicly held companies based in the state to have at least one woman on their board by the end of 2019. That's just the first step. By 2021, boards with five members must have at least two women, and boards with six members or more must have at least three women.

Any company that doesn't comply will have to pay $100,000 for a first violation and $300,000 for a second. This makes California the first state to implement a quota for board diversity, the Los Angeles Times reported.

"Given all the special privileges that corporations have enjoyed for so long, it's high time corporate boards include the people who constitute more than half the 'persons' in America," Brown wrote in his signing letter.

The law comes as the tech industry continues to grapple with diversity issues. The numbers of women in tech are low -- and get lower when you look at positions higher up the corporate ladder. In 2018, Equilar, a company that specializes in board recruiting, found that 20.4 percent of technology companies on the Russell 3000 Index had no women in their boards.

The bill noted, "If measures are not taken to proactively increase the numbers of women serving on corporate boards, studies have shown that it will take decades, as many as 40 or 50 years, to achieve gender parity among directors."

This new law will affect some of Silicon Valley's biggest names. Facebook, for example, has a nine-member board, but only two women (Sheryl Sandberg and Susan Desmond-Hellmann). Apple has eight people on its board, but only two women (Andrea Jung and Susan L. Wagner). Alphabet, Google's parent company, has 11 members, but only two women as well (Diane Greene and Ann Mather).

At the higher end, four of Twitter's 11 board members are women (Ngozi Okonjo-Iweala, Martha Lane Fox, Debra L. Lee and Marjorie Scardino), meeting the law's requirements.

Why it matters

If you're wondering why it matters whether boards have women, there's a growing body of research to suggest benefits of gender-diverse boards not only for women in general, but for companies' financial success.

One thought is that having representation in leadership roles, including in the boardroom, signals to other women at the company that there's a path forward, and it can improve retention. A study from technology learning platform Pluralsight found that one of the top career obstacles identified by women in tech is a lack of role models.

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But there's also a business impact. A report from McKinsey & Company found that companies with more diverse boards see higher financial returns than those with less diverse boards. Credit Suisse reached a similar conclusion -- companies with at least one woman on their boards outperformed companies without women on their boards. The Harvard Business Review has found that diverse teams make for smarter and more creative decision-making.

"The reason to do this is not out of altruism, it's because there's value in diverse boards," said Shannon Gordon, CEO of The Boardlist, an organization that helps companies find qualified women candidates to fill board seats. What's more, Gordon said, she doesn't believe companies are getting the best board candidates if they're neglecting half the population.

While California is the first state in the US to require women on boards, some European countries have been taking this tack for several years. In 2015, Germany passed a law mandating that its largest public companies -- including recognizable names like BMW, Volkswagen, Merck and Bayer -- allocate 30 percent of their board seats to women. Belgium, France, Italy, Spain and the Netherlands have tried quotas with varying degrees of stringency.

Quotas are no silver bullet, though.

In 2003, Norway said it would shut down publicly traded companies if they didn't have boards that were at least 40 percent female. The upshot was that 384 out of 563 public companies went private. A 2014 study found that a decade into Norway's new board rules, the increase in women on boards hadn't affected the number of women represented in senior management positions. The pay gap between men and women only shrank for employees on those boards. In essence, increased representation and equality didn't trickle down through the companies.

And in Silicon Valley, it's hard to gauge what the impact of a law like this could be. After all, it applies only to publicly traded companies.

A 2017 report called The State of the Startup surveyed 869 founders and found 59.5 percent said they had all-male boards. An additional 22.4 percent had mostly male boards.

In any case, diversity advocates can see some reason for optimism.

Serena Fong, vice president of strategic engagement at Catalyst, an organization that works for the advancement of women in the workplace, said one of the effects of the law could be to raise awareness, and that companies will "know they have to pay attention to the issue."

Likewise, Gordon said that even though she wished the government didn't have to resort to quotas, the law could bring about a halo effect. Coming out of the summer months in the US, the Boardlist typically sees a 30 percent spike in searches; in the run-up to this legislation, they've seen a 70 percent increase, she said.

One potential challenge the law might face is the perception that the women who get added to boards are merely diversity hires. Gordon pointed out The Boardlist's database runs about 4,400 deep and so far, no company has approached the organization without a list of rigorous requirements.  

If anything, Fong hopes a law like this will help shift the broader conversation away from why women need to be on boards, to how to actually place them.

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