CDF Key Takeaways: The New Board Mandate: What Does it Really Mean?

CDF Key Takeaways: The New Board Mandate: What Does it Really Mean?

General: 

  • San Diego has the lowest percentage of women on boards in the state of California.
  • The mandate is not a zero-sum game. Board seats can be added without removing current board members.
  • Many women are ideally qualified for serving on boards, and they either don’t know it or don’t represent the information in a way that allows their value to be recognized.
  • Women need to ask themselves: What makes you unique? What do you bring to the table?
  • There is a Business Case for this mandate. Some research shows that having a certain percentage of women on boards improves financial performance.
  • You need people who bring a different perspective and women, among other diverse groups, do this. Different views and experiences result in better outcomes.
  • The data is clear: investors want increased diversity.
  • The PROCESS of nominating board members is one of the greatest barriers to entry and is one of the reasons for the gender gap. This will need to be reevaluated to comply with the mandate.
  • There isn’t a pipeline problem. There are a plethora of women that are board-ready.
  • There are multiple aspects of corporate performance that improve with 3 or more women on the board.
    • Over 40% higher financial results
    • Better risk management practices
    • Greater willingness to hold CEOs accountable
    • Greater focus on creating a more sustainable future
  • Many boards do not tie their long-term financial future to their board composition. This may be problematic.
  • CalSTRS is engaging multiple companies on improving their boards. They are:
    • Asking S&P 500 companies to understand their processes and how they are improving their boards’ functioning and composition.
    • Seeking to understand the effectiveness of boards and the composition of boards.
    • Voting against directors on the nominating/corporate governance position, as well as the full board, if they are not responding to CalSTRS’ requests.
  • What will really move the needle is when institutional investors do not invest in companies that are not improving board diversity.
  • Institutional investors are advocating for women and greater diversity on boards because they want to increase financial performance.
  • Non-profit board members should not undervalue their experience and readiness for serving on a corporate board.

What do we mean when we say board-ready?

  • Good judgment, long-term view, and good common sense
  • Someone who can take a long-term view and does not react too emotionally
  • Someone who can face conflict and respond appropriately
  • Someone with varied skill sets and perspectives
  • Someone with diversity of experience: does not have to be just corporate

Tips for entering the board room:

  • Financial expertise is a very good skill to gain access to the board room.
  • Be a “Jack of All Trades.”
  • Don’t be shy! Be able to articulate exactly what you bring to the table. Women are often told not to brag, but it is okay to be your own advocate, which may feel like bragging.

Transition to the new law:

  • Without the mandate, it would take until somewhere between 2040 to 2060 to reach gender parity, if we stay at the current rate.
  • The new law will impact 56% of the companies headquartered in California, 200+ companies in California will have to add women.
  • By 2021, the following will need to be added:
    • Boards with 4 members = 1 woman
    • Boards with 5 members = 2 women
    • Boards with 5+ members = 3 women
  • This means 1,016 board seats will need to be given to women.

Legal Concerns:

  • Some argue that the law is open to challenge based on its attempt to unconstitutionally reach beyond the state’s borders. Critics claim that it violates the internal affairs doctrine, a conflict-of-laws principle, which recognizes that only a corporation’s state of incorporation should have the authority to regulate its internal affairs, including the composition and election of its board of directors. Therefore, if it’s headquarters and state of incorporation are different, it could pose a problem.
  • There have not been any legal challenges so far. The Chamber of Commerce issued a statement informing that they do not currently have plans to challenge the law.
  • The Secretary of State is authorized to impose a fine of $100K for the first violation and $300K for subsequent violations.
Share with your peers: