Women's representation on corporate boards is dropping in California
Since a California law mandating that women be on corporate boards was put on hold, the representation of women on boards in the state has been dropping.
The California law, SB 826, passed in 2018 and required that publicly traded corporations headquartered in California include at least one woman on their boards by the end of 2019. The law also mandated that, by the end of July 2021, at least two women must sit on boards with five members, and at least three women must sit on those with six or more members.
Noncompliant companies were required to pay a fine of $100,000 for the first violation and $300,000 for each subsequent breach. In perhaps a more significant punishment for the organizations, the California Secretary of State would publicly list which companies were complying and which were not.
The law was effective in bringing more gender diversity to California boardrooms. By September 2022, women represented more than 33.33% of board members in the state, more than doubling the 15.5% of board seats held by women in 2018.
However, the law was challenged and ruled unconstitutional in 2022. Since then, the percentage of women on corporate boards has started to decrease, and at the end of September 2023, the proportion of women on boards fell to 32.75%. The State of California is appealing the court decision.
To better understand the impact of the legislation, consider this: In June 2018, just before the law’s requirements kicked in, 183 of California's public companies had all-male boards. Fast forward four years, and this number had dramatically dropped to just nine companies. However, this trend has seen a noticeable reversal since the law was put on hold. Currently, 22 California companies have exclusively male boards. For example, California-based solar provider Complete Solaria and electronic aviation company Surf Air Mobility both have 7-person corporate boards that are all male.
Nonetheless, the board gender balance in California has improved dramatically in the past five years. “I’m incredibly proud of the progress we’ve made since 2018, and I know that California’s numbers remain higher than the national average, in part because we’ve been able to show companies in California the benefit of recruiting and retaining women in the highest echelons of leadership,” California’s First Partner Jennifer Siebel Newsom said in a release about the board gender diversity numbers. She added that we need to “keep up the drumbeat,” reminding corporations of the importance of women’s representation.
Some previous studies have indicated that having more women on corporate boards is linked to greater profits and more ethical behavior in the company. However, these correlational studies don’t necessarily show that adding more women to boards will result in greater profits or better corporate behavior.
The decrease in women’s representation on boards in California may also reflect a trend throughout the country. In 2022, 40% of new board seats of Fortune 500 companies went to women, down from 45% in 2021.
According to an analysis of Fortune 500 boards from executive search firm Heidrick & Struggles, the decrease may be explained by organizations prioritizing directors with CEO and CFO
Of the 414 new board seats filled in 2022 for Fortune 500 companies, 43% went to individuals who were currently CEOs or had CEO experience. If CEO experience is desirable, women will be more likely to be excluded because women hold far fewer CEO positions than men. Only 10% of Fortune 500 CEOs and 12% of CFOs are female.
The trend is similar when considering a broader range of companies in the United States. When examining the 3,000 largest publicly traded companies (the Russell 3000), the percentage of new board seats filled by women is declining in 2023 compared to 2022.
