Bill Requiring Female Representation Passes through California Assembly

California’s board gender quota bill, SB 826, requiring publicly traded companies to have a minimum of one woman on the board by the end of 2019, was amended in assembly last week. Changes were made on the penalties issued on non-compliant companies: $100,000 fine for those that miss the deadline for California Secretary of State’s board member gender information with the pursuant to future-adopted regulations, and a $300,000 fine for a second or subsequent violation. That board diversity threshold would increase from 2022, to two women for boards with five or fewer directors, or three women for boards of six or more. California’s proposition would become the first regulatory mandate in the US. Abroad, countries in the EU have implemented these board quotas.

Major catalysts of this movement include large US pension funds and institutional investors, like CalPERS/CalSTRS and SSGA (who’ve traditionally advocated for increasing female representation on boards), academic research from MSCI and Credit Suisse showing correlation between greater board gender diversity and financial performance, and the realizations of financial impacts stemming from reputational risks and social forces, such as the #MeToo campaign and recent high-profile gender pay discrimination litigation at Alphabet and Oracle.

In a recent Rivel Corporate Governance Council study, North American and, even more so, European investors opined that exhibiting sufficient board diversity aids board effectiveness and helps shape strategic flexibility.