Women, as well as all shareholders and debt-holders of California firms, should be flooding California Governor Jerry Brown’s inbox and voicemail with calls to veto the recently passed Senate Bill 826, which mandates quotas for women on corporate boards.
Specifically, S.B. 826 would:
1) Provide for gender diverse representation on corporate boards by requiring each publicly-held corporation headquartered in California to have at least one woman on its board of directors by the end of 2019.
2) Beginning July 2021, require a minimum of two women directors on boards with five directors and at least three women on boards with six or more directors.
Merits Should Outweigh Quotas
Women should be rightly against it because the sole effect will be for existing board members to assume new women board members are only there as quota-fillers who are by definition less qualified than they are. I can’t imagine a woman of substance wanting a board seat under such circumstances.
Nominating committees across the state and across the country are already actively seeking women and individuals of color and other “diverse” characteristics. As anyone who has done board recruiting knows, it is very difficult to get highly qualified board members because highly qualified people tend to already be very busy. Good nominating committees, therefore, seek diversity as one of many attributes, and if they cannot find someone good enough who checks the “diverse” box, they know they need to go with merit over quota.
Boards perform difficult and important work: protecting the shareholders’ interests by holding management accountable, reviewing senior leadership’s performance and replacing when warranted, ensuring compliance with thousands of regulations, bringing independent experience and knowledge of the broader environment to help businesses see opportunities and threats insiders may well miss, and helping set strategies for maximizing potential.
When board members are selected for any qualifications other than their ability to perform these roles better than alternative candidates, the company will by definition be handicapped relative to its competition.
When board members are selected for any qualifications other than their ability to perform these roles better than alternative candidates, the company will by definition be handicapped relative to its competition. In the case of California firms, which are already suffering from cost and regulatory challenges those headquartered in other states do not have to bear, imposing the requirement that quotas trump merit in selecting board members only adds to their competitive disadvantage.
One would think the California State Legislature would be fully occupied with the pressing needs of its own state apparatus before turning its attention to how privately governed institutions are run. California ranks among the worst public school systems in the country; it has raging wildfires across the state caused by criminally negligent public lands management; its infrastructure is crumbling; failing dams and water systems are depriving its residents, farmers, wildlife, and businesses of this most critical resource; public pensions are bankrupting state services; it is host to the worst homeless crisis in the country, and much more.
California’s politicians owe it to their constituents to turn their attention to the (mis-)management of their own house and quit hiding their ineptness behind the smoke and mirrors of “diversity,” “equity,” “justice,” and all the other goods government is worst at delivering.
California’s board nominating committees are already actively working to add more women to their boards. California’s politicians owe it to their constituents to turn their attention to the (mis-)management of their own house and quit hiding their ineptness behind the smoke and mirrors of “diversity,” “equity,” “justice,” and all the other goods government is worst at delivering.
This article was reprinted with permission from the Independent Institute.