BILL ANALYSIS �
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Date of Hearing: September 11, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SCR 62 (Jackson) - As Introduced: July 11, 2013
SENATE VOTE : 30-6
SUBJECT : Women on Corporate Boards
KEY ISSUE : Should the Legislature urge corporations to increase
the number of women who serve on corporate boards?
FISCAL EFFECT : As currently in print this measure is keyed
non-fiscal.
SYNOPSIS
This resolution urges corporations to make gender equity a
priority and appoint more women to their boards of directors.
Specifically, this measure urges that, within the next three
years, every publicly held corporation in California with nine
or more director seats have a minimum of three women on its
board, every publicly held corporation in California with five
to eight director seats have a minimum of two women on its
board, and every publicly held corporation in California with
fewer than five director seats have a minimum of one woman on
its board. Recent studies - many of them admirably summarized
in a Wall Street Journal series on "Women in the Economy" - make
two seemingly inconsistent observations: (1) Corporations with
more women board members outperform corporations with fewer
women board members; and (2) despite this empirical evidence,
women continue to be grossly under-represented on corporate
boards. The studies point to a variety of institutional
obstacles to women's advancement in the corporate world. They
then suggest that corporations could overcome these barriers if
they make recruitment of women a priority and take other modest
steps to change corporate culture and promotion policies. This
resolution therefore encourages corporations to make such female
representation on boards a priority. There is no known
opposition to this seemingly non-controversial measure.
SUMMARY : Encourages equitable and diverse gender representation
on corporate boards, and urges that, within the three-year
period from January 2014 to December 2016, every publicly held
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corporation in California with nine or more director seats have
a minimum of three women on its board, every publicly held
corporation in California with five to eight director seats have
a minimum of two women on its board, and every publicly held
corporation in California with fewer than five director seats
have a minimum of one woman on its board.
EXISTING LAW provides that the business and affairs of a
California corporation shall be managed and all corporate powers
shall be exercised by or under the direction of a board of
directors; vests the board with specified powers and duties; and
sets forth the procedures for appointing, electing, and removing
board members. (Corporations Code Section 300 et seq.)
COMMENTS : According to several studies cited in this
resolution, there is a positive correlation between a
corporation's economic performance and the number of women who
serve on the corporation's board of directors or in upper
management. Yet many of these same studies also show that even
where women make up 50% or more of the company's new hires, they
make up only a fraction (typically 16% or less) of that
company's board directors or executive officers. In other
words, well-qualified and well-educated women are obtaining
positions in the corporate world in growing numbers, but they
are rarely making it into the corporate board room. A series of
articles that appeared in the Wall Street Journal reported that
this relative paucity of female directors and executive officers
exists even though the vast majority of corporate executives
believe that excluding women from corporate leadership positions
greatly reduces the pool of available talent and works to the
detriment of the company's bottom line. These articles
generally conclude that while the absence of women stems from a
variety of institutional, cultural, and psychological barriers,
these barriers can be alleviated where companies make
recruitment of women a conscious and articulated priority.
(Links to these articles may be found at the Wall Street
Journal's "Women in the Economy" page at
http://online.wsj.com/public/page/women-in-the-economy-05072012.h
tml .)
This resolution urges (but, as a resolution, cannot require)
corporations to make gender equity a priority and appoint more
women to their boards of directors. Specifically, this measure
urges every publicly held corporation in California with nine or
more director seats to have a minimum of three women on its
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board, every publicly held corporation in California with five
to eight director seats to have a minimum of two women on its
board, and every publicly held corporation in California with
fewer than five director seats to have a minimum of one woman on
its board.
Positive Correlation between Corporate Performance and the
Number of Women Board Members : The resolution cites the
following studies to illustrate both the lack of gender equity
on existing boards and the benefits that would accrue if women
were more equitably represented:
1.University of California, Davis (Study of California Women
Business Leaders, 2012-13) . Found there is only one woman for
every nine men among directors and the highest-paid
executives; no company has a gender-balanced board or
management team; 44.8% of California's companies have no women
directors; 34% have only one woman director; among counties
with at least 20 companies, San Francisco has the greatest
percentage of women directors (15.5%) and Orange has the least
(7.7%); firms in the semiconductor industries and those
located in the Silicon Valley tended to include fewer women on
the board and in the highest-paid executive positions; and
firms in the consumer goods sector had the highest average
percentage of women directors and highest-paid executives.
2.McKinsey and Company ("Women Matter" study) . Showed that
companies where women are most strongly represented at board
or top-management levels are also the companies that perform
the best; companies with three or more women in senior
management functions score more highly, on average, on the
organizational performance profile than companies with no
women at the top; and performance increases significantly once
a certain critical mass is attained (specifically, when there
are at least three women on management committees with an
average membership of 10 people).
3.Oklahoma State University study . Found that board diversity,
including gender and ethnicity, is associated with improved
financial value and that a significant positive relationship
exists between the fraction of women or minorities on the
board and firm value.
4."Women Directors on Corporate Boards" report . Found that
gender diversity on corporate boards contributes to more
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effective corporate governance and to positive governance
outcomes through a variety of board processes as well as
through individual interactions; that women directors
contribute to important firm-level outcomes as they play
direct roles as leaders and mentors, as well as indirect roles
as symbols of opportunity for other women, and inspire those
women to achieve and stay with their firms; and that more
recognition is needed for the valuable contribution of women
directors to firm value.
5.Credit Suisse (six-year global research study of more than
2,000 companies worldwide) . Showed that women on boards
improve business performance by key metrics, including stock
performance, as demonstrated by the fact that companies with a
market capitalization of more than $10 billion, whose boards
have women, outperformed shares of comparable businesses with
all-male boards by 26%. The Credit Suisse report found that
there has been a greater correlation between stock performance
and the presence of women on a board since the financial
crisis in 2008; companies with women on their boards
significantly outperformed others when the recession occurred;
companies with women on their boards tend to be somewhat risk
averse and carry less debt, on average; and net income growth
for companies with women on their boards averaged 14% over a
six-year period, compared with 10% for those with no women
directors.
6."Women Directors on Corporate Boards: From Tokenism to
Critical Mass" study and "Critical Mass on Corporate Boards:
Why Three or More Women Enhance Governance" report . States
that attaining critical mass, going from one or two women
directors to at least three women directors, creates an
environment where women are no longer seen as outsiders and
are able to influence the content and process of board
discussions more substantially, and boards of directors need
to have at least three women to enable them to interact and
exercise an influence on the working style, processes, and
tasks of the board, in turn positively affecting the level of
organizational innovation within the firm.
International Developments : Although this resolution only
"urges" corporations to appoint more women to their boards,
other nations have gone much further, establishing quotas. For
example, Norway and France have set quotas that will eventually
require that 40% of corporate board members be female.
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Following the lead of Norway and France, the European
Commission, the executive body of the European Union, proposed
legislation setting a similar 40% target for the corporations in
all of its member nations. Such efforts are not restricted to
Europe, however. According to the author, in 2012 the United
Arab Emirates required every company to have at least one female
board member.
ARGUMENTS IN SUPPORT : According to the author: "More women are
needed in top leadership positions. In an effort to bring
gender equity in the workplace, including fair representation,
pay parity, safer workplaces, and greater work-life balance,
changes need to occur at the top of the corporate structure.
Women's high-level involvement in corporations clearly provides
a benefit to corporations. This resolution, through various
study citations, makes clear the important role women have in
the overall success of a corporation. From an economic, a
business and a fairness perspective, diversity matters."
The nine chapters of the National Association of Women Business
Owners (NAWBO) in California unanimously support this
resolution. NAWBO claims that among "the 1.3 million women
business owners in California, there are accomplished women
entrepreneurs who have built, merged and sold their
corporations, many of whom are qualified to serve on corporate
boards." NAWBO believes "that corporations with at least three
women on their boards are better suited to make decisions that
impact business, the community and the citizens of California,
reaching far beyond the borders of our state."
The California Women Lawyers (CWL) supports this bill because
"not only does it make good business sense, but it aids in the
advancement of women in business and society." CWL notes that
many women business owners in California, including lawyers,
have "the experience and qualifications to serve on corporate
boards."
REGISTERED SUPPORT / OPPOSITION :
Support
California Women Lawyers
National Association of Women Business Owners, California
National Association of Women Business Owners, Los Angeles
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Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334