Beginning in 2021, public companies headquartered in California will be legally required to diversify their boards in terms of race, ethnicity and sexual and gender identity.
The law (AB 979) signed by California Governor Gavin Newsom on Sept. 30 requires companies to have at least one board member from an underrepresented community by the end of 2021 and at least two or three by the end of 2022.
The bill defines “underrepresented communities” as people who identify as Black, Latino, Native American, Asian American, Pacific Islander, Native Hawaiian or Alaska Natives. Companies can also appoint directors who identify as gay, lesbian, bisexual or transgender.
“The reality exists that we have not seen enough change in board membership and California is attempting to course correct for an ongoing lack of representation for women, people of color, and those who identify as LGBTQ,” said Scott Cawood, CEO of WorldatWork. “While I’d rather see organizations lead this change effort, the goal of the legislation is broader representation and that is ultimately a great thing for business.”
The new law extends upon California’s 2018 law, which required public companies headquartered in the state to have at least one female on their board of directors by the end of 2019. According to The Wall Street Journal, there were 93 California-based companies in the Russell 3000 that had all-male boards when the bill was signed into law. Within a year, only 17 had no women on their boards.
During the same period, according to the WSJ, 244 California companies in the Russell 3000 have added at least one female director, and 41 companies added two. Even more surprising: More than 90% of companies in the S&P 500 now include two or more women on their boards, compared to 86% in the prior year. And last year a milestone was reached, as the last all-male board among the S&P 500 was eliminated.
Notably, for the second year in a row, California had the largest increase in companies with 20% or more of their board seats held by women. In California, 68 more companies met the 20% goal in 2019 than in 2018. According to data from Bloomberg, women “now hold 28% of all board seats at major corporations.”
By comparison, about “a dozen of the largest companies by market value in the S&P 500 Index have no Black board members,” according to Bloomberg, which also found that the number of Black corporate directors has stalled or even declined. While roughly 10% of directors at the 200 biggest S&P 500 companies are Black, according to executive recruiting firm Spencer Stuart Inc., the percentage of Black executives joining boards in 2020 fell to 11% from 13% the year before.”
Similarly, according to Heidrick & Struggles’ “Board Monitor U.S. 2020,” in contrast to significant gains posted for women among newly appointed directors compared to prior years, increases in racial and ethnic diversity were labeled as disappointing. Nearly half, or 44%, of non-executive director appointments in the U.S. last year, were women, the highest proportion since Heidrick & Struggles began tracking board appointments 11 years ago.
The study noted that “people of color also have made some progress on boards in the United States — with appointments increasing from 13% in 2010 to 23% in 2019 — although the rate of change has been notably slow, taking 9 years to increase by only 10 percentage points.”
A report from ISS ESG, an arm of Institutional Shareholder Services, found that only 16.8% of large cap company boards had racially or ethnically diverse directors, up from 13.6% in 2015. By contrast, the growth in the number of women directors has been much greater. Women directors now account for 27.4% of such boards, up from 18.3% five years ago.
About the Author
Brett Christie is the managing editor of Workspan Daily.