A year after California lawmakers passed a bill requiring gender diversity on corporate boards, researchers say some companies are lagging behind. The study also found that publicly traded companies took a stock hit after the law passed.
Researchers from Clemson University in South Carolina and the University of Arizona found that as of July, 14 percent of the companies in California they studied still need to add a female board member. And corporations in the state will need to add more than 1,000 women to boards by 2021, the study found.
The governor signed the corporate board gender diversity bill into law Sept. 30, 2018. The law requires publicly held corporations “headquartered in California to have at least one woman on its board of directors by the end of 2019. Further, beginning July 2021, the bill requires a minimum of two women directors on boards with five directors and at least three women on boards with six or more directors,” according to the California Legislative Women’s Caucus.
“We started looking into the law and its impact the day after the bill was signed,” Clemson assistant professor Daniel Greene said in a press release.
Stock value for California companies took a hit from the new law, the study found, with an initial drop overall of 1.2 percent in value.
“We didn’t find a negative reaction to the requirement of adding one female director,” Clemson assistant professor Vincent Intintoli said. “More onerous was the requirement that companies add up to three female directors by 2021.”
The number of women directors in public companies in the state has gone up 23 percent, with 143 additional women in leadership positions, since the law was passed, the study found.
“It’s a hot topic, given this is the only law in the country requiring female directors, so we put the project on a fast track to get the paper published. Turns out, it will be just over a year from when we started the research to publication,” Greene said.
There have been several studies already on the impact of the new law, the researchers said, but those only looked at the largest public companies listed in the Russell 3000.
“This study looks at the full scope of firms, large and small,” Intintoli said. “Most others examine only companies in the Russell 3000, which can be problematic since smaller firms are more likely to lack female directors and have a difficult time attracting new director talent.”
The researchers found that those smaller companies were lagging behind in adding women to corporate boards, either by replacing male board members or expanding their boards of directors.
“Costs of board expansion are negligible for the largest firms, but substantial for the smallest. For many firms, the costs of expansion outweigh the 2019 penalty ($100,000) for non-compliance,” according to the study.
Companies still have until the end of the year to comply with the law, but, the researchers say, “For some firms, incurring the 2019 penalty of $100,000 is less than the annual average director’s pay. Though the penalty increases to $300,000 in 2020 if they haven’t added a female director.”
A lawsuit filed in August is challenging the board diversity law as unconstitutional, according to the Sacramento Bee.
“California’s gender quota law is brazenly unconstitutional,” Judicial Watch President Tom Fitton said in a statement, the Bee reports. Judicial Watch is representing the plaintiffs in the case.
“Even Gov. Brown, in signing the law, worried that it is unconstitutional. Judicial Watch’s California taxpayer clients are stepping up to make sure that California’s Constitution, which prohibits sex discrimination, is upheld,” Fitton said.