Women on Board

Author: Ken Taylor | UC Berkeley School of Law | J.D. Candidate 2020 | Posted: January 18th, 2019 | Download PDF

California governor Jerry Brown signed Senate Bill No. 826 into law on September 30, 2018. The law requires publicly-traded companies incorporated in California to put at least one woman on their board under threat of penalty.[1] In addition to the issue of constitutionality, there are numerous problems with this law.

Section 1 of the law cites reports of corporations with at least a woman on board outperforming corporations with no woman on board.[2] However, none of these reports demonstrate that having a woman on board is what causes superior performance. For instance, 2014 report by Credit Suisse is cited for its conclusion that companies with at least one woman on the board had an average ROE higher than that of companies with no female directors.[3] But merely pointing out phenomena without scrutinizing their relationship amounts to little more than a naked assertion. In another example, the authors of “Women Create A Sustainable Future” study at Berkeley admits that its findings are “correlative.”[4] More alarmingly, the law ignores scientific literature showing little to no relationship between having a woman on board and corporate performance.[5]

The law, then, is not justifiable on economic grounds. But if we assume that the above assertion is unequivocally true, that the research is ironclad, why is it that we do not see more corporations with at least one woman on board? Corporations have been criticized for maximizing profits for shareholders.[6] But if corporations are these greedy profit machines, how do we reconcile that with the fact that corporations are giving up on all this free money, money that can be obtained by simply having women on board? It defies common sense to think that self-interested shareholders would choose to have no woman on board if gender diversity is as profitable as claimed.

When the economic argument fails, the debate invariably shifts to discussion of gender parity as an end in itself. Although the bill does not purport to make the case on that basis, it is often assumed that there should be gender parity (or at least one woman) on corporate boards because at least half of the general population is women. But this is a non-sequitur. There is no reason why the gender composition of the general population should be reflected in any particular area of life.

Inherent in the claim that the gender representation on corporate boards should resemble that of the general population is the assumption that the gender disparity in this area is due to some nefarious reasons. To be fair, it is possible that shareholders and directors, 54 years since the passage of the Civil Rights Act of 1964, remain firmly committed to bigotry that they will not give women a chance. But it is also possible that there are simply more men willing to subject themselves to 80-hour workweek for 20 years in the line of work where the necessary skills and experience can be cultivated, all the while forgoing opportunities to spend time with their family.

But let us assume, for the sake of the argument, that prejudice against women is what is keeping them down. Would a law like Bill 826 solve that problem? Probably not. First, there is no reason to believe that sexist shareholders, presumably a group that is so bigoted it cannot be convinced to bring women on board despite the tremendous boost to its bottom line, can be persuaded to comply with this law, the violation of which results in $100,000-300,000 fine, a tiny sum compared to what shareholders would be forgoing from having at least one woman on board.

Second, contrary to the assertion that the bill sends a message to women that they are valued and respected,[7] mandating boards to include women—forcing boards to bring on women—sends the opposite message. Imagine a law requiring husbands to take their wives out to dinner once a week so that the wives would feel appreciated. No self-respecting woman would feel genuine appreciation. Bill 826 is an indictment against hardworking, ambitious women. The fact is, a woman can and do make it on corporate boards if they work just as hard and sacrifice just as much as a man in a similar situation. Legally requiring boards to bring on women reinforces the idea that women cannot make it on their own.

Finally, the bill defines “female” as an individual who self-identifies as a woman, without regard to the individual’s sex, effectively rendering the bill pointless. This is insane.

[1] https://www.forbes.com/sites/jillgriffin/2018/09/08/california-mandates-more-women-on-corporate-boards/#2adf91e5191e
[2] https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB826
[3] Id.
[4] http://www.haas.berkeley.edu/groups/online_marketing/facultyCV/papers/Women_Create_Sustainable_Value_FINAL_10_2012
[5] https://spssi.onlinelibrary.wiley.com/doi/abs/10.1111/josi.12163
[6] https://www.vox.com/2018/8/15/17683022/elizabeth-warren-accountable-capitalism-corporations
[7] https://www.cnbc.com/2018/10/01/california-law-will-require-women-on-corporate-boards.html