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89% of California-based companies will need to make changes to their board composition in the next three years to meet the new law’s requirements.

May 20, 2019

California Dreamin’: The Impact of the New Board Gender Diversity Law

Just as the Mamas & the Papas pioneered the folk-rock scene of the 1960s as one of the first truly gender diverse music group, their native state of California is breaking ground for increased board gender diversity in the United States.

Unlike a growing number of countries in Europe and around the globe that have instituted comply-or-explain policies and/or gender diversity quotas, the U.S. has not implemented regulatory requirements in relation to board gender diversity.

The record-breaking influx of female board members observed in the past two years is primarily driven by private ordering through company-shareholder engagement, shareholder proposals, and an increasing number of large asset managers adopting voting policies emphasizing board gender diversity. However, the U.S.’s market-driven approach to gender diversity may begin to change, as quotas mandating board gender diversity are introduced and put into law in the state where the highest number of U.S. companies maintain their headquarters. California’s recently passed Senate Bill (SB) 826 is the first law in the United States to introduce such measures.

Our research finds that 89 percent of California-based companies will need to make changes to their board composition in the next three years to meet the new law’s requirements. Moreover, California-based companies appear to lag behind most other states with respect to board gender diversity, as a relatively small percentage of them have at least two women on their board. Our projections indicate that SB 826, once implemented, could have significant reverberations for the entire U.S. market, potentially increasing the number of women on U.S. boards by 22 percent, adding to the momentum of greater women representation of the past few years. Even if SB 826 faces significant legal challenges, our assessment is that the new legislation will have a long-lasting effect on board gender diversity in the Golden State and beyond.

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