Law Requiring Women on Corporate Boards Brought About Change

Companies in many sectors, including the cleaning industry, value diversity, equity, and inclusion (DEI), with many showing their commitment to DEI by appointing more women to their corporate boards.

The recently overturned California Women on Boards Law, SB826, was passed in 2018 to force more companies to follow DEI practices. It required publicly held companies based in California to have two to three women directors by the end of 2021, depending on company size, and allowed the secretary of state to issue fines of up to US$300,000 per violation.

The bill was on shaky ground since it passed, with many legal experts saying it would be difficult to defend. Despite its potential to be overturned, the governor of California at the time, Jerry Brown, signed it into law to send a message during the #MeToo era.

So, it was no surprise when a Los Angeles judge ruled the law unconstitutional earlier this month, saying it violated the right to equal treatment. The conservative legal group Judicial Watch had challenged the law, claiming it was illegal to use taxpayer funds to enforce a law that violates the equal protection clause of the California Constitution by mandating a gender-based quota.

However, the law helped bring about changes to California boards, getting more women into boardrooms and bringing the question of diversity to the forefront, the New York Times reports.

The number of companies in California with no female directors dropped to 1% in 2021, from 28% before the law was passed in 2018, according to data from California Partners Project, a gender equity nonprofit that was co-founded by Jennifer Siebel Newsom, the wife of California’s governor, Gavin Newsom. Overall, women held 31% of California in 2021—more than twice as many as in 2018.

“Today, over half of California’s public companies have three or more women on their board, which is up from 11 percent in 2018,” said Leigha Weinberg, a program director at California Partners Project.

The California law also influenced the corporate world, with an increasing number of institutions demanding leadership diversity from companies that are looking to go public.

“There’s no boardroom in America that isn’t talking about diversity,” said Megan Wang, the chief operating officer at the Boardlist, which helps companies find board director candidates. “The law certainly accelerated something we had been talking about for decades.”

California will appeal the ruling that struck down SB826. In the meantime, other states are following California’s lead. Washington state passed a similar measure last year, and lawmakers in Massachusetts, New Jersey, and Hawaii proposed similar bills. Illinois requires publicly traded companies to report the makeup of their boards.