Filling The Opportunity Gap

Most experts agree that board diversity needs to change but do not necessarily agree how.

- Brian Bolton

Kudos to California, where the state governor, Jerry Brown, recently signed into law new requirements for companies headquartered in the state to include more women on their boards. The law will force heavyweights such as Apple, Facebook, Tesla, and Google (Alphabet) to revamp their boards to comply.

Supporters believe increasing board diversity is important for both social and economic reasons; that a more diverse pool of directors creates a better board, with different and more innovative perspectives. Opponents of the law question its efficacy, saying it’s like treating a symptom rather than the disease. But because it’s human behaviour that we’re trying to change in this case, treating the symptom can be a big first step towards treating the disease.

Specifically, all companies in California will be required to have at least one woman on their board by 2019. Boards with five or fewer directors will need two female directors by 2021 and larger boards will need three. Non-compliant firms would be subject to (relatively small) fines.

To assess the scope of the change, let’s review the statistics on diversity in the upper rank of corporations. In 2017, for the 1,500 largest US companies (all board statistics are my own, using data from advisory firm ISS):

5% of firms have a female CEO.

4% of firms have a female board chair. 16% of directors are women.

15% of audit and compensation committees have a female chair.

Female directors own 75% the amount of stock that male directors own; this is independent of their tenure on the board.

7% of boards have at least three women and 2% have at least four women; all 1,500 boards have at least three men.