Publicly Held Corporations in California Will Have to Include Women on Their Boards

Publicly Held Corporations in California Will Have to Include Women on Their Boards
Publicly Held Corporations in California Will Have to Include Women on Their Boards

California became the first state to require its publicly held corporations to include women on their boards after Gov. Jerry Brown signed a bill into law on Sunday.

The bill, which applies to companies “whose principal executive offices” are in California, requires them to have at least one woman on their boards by the end of 2019.

In 2021, the companies must have a minimum of two or three women, depending on the size of their boards.

Hundreds of companies will be affected by the law, according to The Los Angeles Times, and those that fail to comply can be fined $100,000 for a first violation and $300,000 for a second.

In signing the legislation, Mr. Brown acknowledged that critics have raised “serious legal concerns” about it, which he conceded “may prove fatal to its ultimate implementation.”

Still, he copied his letter to the United States Senate Judiciary Committee, which last week narrowly voted to recommend Judge Brett M. Kavanaugh’s nomination to the Supreme Court and send it to the full Senate, despite allegations of sexual assault against him.

“Recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message,” Mr. Brown said.

Hannah-Beth Jackson, a Democratic state senator who represents Santa Barbara and helped write the legislation,

on Twitter.

She has said that a quarter of California’s publicly traded companies do not have a woman on their boards, despite studies showing that companies that do are more profitable and productive. (Some research, however, has suggested that the findings are less conclusive.)

Although California is the first state to enact such a mandate, others have passed resolutions about increasing the number of women on company boards, Ms. Jackson has said. Several nations, such as France, Germany and Norway, have already developed gender diversity requirements for corporate boards, she has said.

“Yet another glass ceiling is shattered, and women will finally have a seat at the table in corporate board rooms,” Ms. Jackson said on Sunday. She added, “This is a giant step forward for women, our businesses and our economy.”

Charles Elson, a professor and the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said that while the goal of the legislation was laudable, the law was unwise and California will “ultimately regret it.”

Company shareholders, he said, “should be able to elect any representatives they want.” And it is in their best interest to be able to pick representatives from a broad pool “to get the best possible people regardless of their sex.”

“When you start telling people they have to elect someone on the basis of an immutable characteristic, it’s very problematic,” he said. “This goes to the heart of democracy.”

The bill was opposed by a coalition of business groups led by the California Chamber of Commerce, which argued that the quotas were “likely unconstitutional, a violation of California’s Civil Rights statute, and a violation of the internal affairs doctrine for publicly held corporations.”

In a letter, the coalition said the intent of the bill was good, but expressed concern that the legislation “potentially elevates” gender “as a priority over other aspects of diversity.”

“If there are two qualified candidates for a director position, one male and one female,” the letter said, the bill “would require the company to choose the female candidate and deny the male candidate the position, based on gender.”

The group also noted that the bill may not apply to publicly traded corporations that are incorporated in another state, even if their principal executive offices are in California.

“Such confusion and ambiguity will only lead to costly fines as proposed under the bill and potential litigation,” the group said.

Mr. Brown, though, was not persuaded. As has become his habit over decades in political office, Mr. Brown sprinkled a hint of historical whimsy into the conclusion of his signing letter.

“As far back as 1886, and before women were even allowed to vote, corporations have been considered persons within the meaning of the Fourteenth Amendment,” he wrote. “Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”

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