Do Mandates Change Board Makeup?

March 4, 2020

By April Hall

In the first report since California's “Women on Boards” legislation went into effect, numbers are slightly up for gender diversity on publicly traded boards headquartered in the state, with 282 corporations reporting a female director appointment, compared to the 173 companies that had a female director in 2019.

“We are excited to see the increase in publicly held corporations adding women to their boards. We look forward to analyzing the data that we have collected to date,” said California secretary of state Alex Padilla in a press release. Padilla’s office released the report on Monday.

However, 43 companies reported that their directors were only men and 300 companies didn’t disclose their status at all.

It raises the question of whether the law is really the tipping point for gender parity in the boardroom.

In New York there are no board quotas for women directors, but corporations headquartered there will have to disclose board makeup biennially beginning in 2021.

“I’m not sure it will ultimately be the factor that moves the needle [toward gender parity],” says Doreen E. Lilienfeld, global head of the governance and advisory group and the team leader of the compensation, governance and Employee Retirement Income Security Act practice at Shearman & Sterling based in New York City.

It is important to note that there has been “slow, but steady change,” in the nation’s boardrooms, says Lilienfeld, who often advises nomination/governance board committees.

“If you do have a board and the board is well-functioning, you aren’t going to throw out the baby with the bathwater to re-engineer your board,” she says. “People are not just breaking eggs to make an omelet. Shareholders and the companies are being mindful when there are organic spots to fill.”

And there are numbers to back her theory. Female representation among the incoming class of S&P 500 directors rose to 46%, the highest since the Spencer Stuart Board Index began tracking this data in 1998. Women represent 26% of S&P 500 directors, up from 24% last year, according to this year’s index. Spencer Stuart is an executive search and leadership advisory firm.

Disclosing board makeup, while there may be no legal penalty for having no women directors, does put another spotlight on the issue. While there are other organizations already beating the drum, having more voices amplify the message, Lilienfeld says.

“In my opinion, I don’t think that legislative quotas are going to be what makes successful change [in gender parity],” she says. “What we’ve seen in practice — what has been successful — is the dialog between board, particularly nom/gov committees, and shareholders about board refreshment and composition and the board and committees hear those concerns and implements change accordingly.”