Will Mandated Gender Diversity in California Make a Difference?

On September 20, 2018, Senate Bill (SB) 826 was signed into California law by Governor Jerry Brown. SB 826, which was introduced by Senators Jackson, Atkins and Leyva mandates that each publicly held company that is headquartered in California must have at least one female member on its board of directors by December 31, 2019. It also requires that if a corporation has six or more directors, then a minimum of three must be female, and if there are five directors, then a minimum of two must be female by December 31, 2021.

If a company doesn’t comply then they could be looking at a $100,000 to $300,000 fine. Similar diversity-focused laws have been proposed with mixed reactions, some questioning the ethics of such a law. SB 826 will have a huge impact on California corporations, including Facebook, Apple, and Adobe. The law will also affect over 400 other California-headquartered companies, a quarter of which don’t have any female board directors. It is important to understand the research and reasoning backing up a policy that is requiring such as change, as well as why it may not work the way its creators had intended.

 SB 826 states that having more women on a board of directors will create a better, more profitable company. The bill cites research done in 2016 by McKinsey & Company that showed corporations with female directors tend to outperform those that don’t. Specifically, the research showed that “corporations where women are strongly represented at board or top-management levels are also businesses that perform the best, in profitability, productivity, innovation, governance, better performance and workplace engagement.” 

Additional research found that only 15.5% of the board seats of Californian companies were held by women. This is below the national average; 16.2% of Russell 3000 board seats and 19.9% of Fortune 1000 board seats are held by women. 

To Senators Jackson, Atkins and Leyva this is not enough. The summary of the bill states, “California is the 5^th largest economy in the world and, as such, sets an example for responsible businesses globally. Therefore, California has a responsibility to ensure that women are included in the discussions and decisions that affect corporate actions and profitability.” This bill is not just about increasing the profitability of a company, though it may be framed that way. Truthfully, this bill is about sending a message about the worth of women, and the pursuit of equality.

The intent behind this bill is a step in a positive direction. However, other studies show this bill may not give much more voice to corporate women. The most important phrase from the results of the McKinsey & Company study is “corporations where women are strongly represented.” It is not enough for women to simply be represented by a few or even a single female director.

A study done by Tali Mendelberg, Christopher Karpowitz, and J. Baxter Oliphant looked at the experiences of women during deliberation. Deliberation refers to making a decision through discourse where options are discussed among multiple people. Their study focused on how often women spoke and how often they were interrupted during two types of deliberation: majority rule, where the greater number exercises the greater power, and consensus, where the whole group must agree. 

The experiment had varying numbers of women in a group, from 0-5, for each type of deliberation. The study found that within consensus decision making, the women spoke as much as the men regardless of how many women there were. However, majority rule deliberation had more negative results. Overall, women were frequently negatively interrupted, meaning a man would talk over the woman to steal the floor. Women don’t speak as often when they are the minority and they don’t often speak on the topics they want to. In fact, it wasn’t until there were 4 women in the group of 5 that the women spoke as much as the single man. 

Ultimately, the study found that the worst condition for women’s participation and influence is the one most prevalent in the world—majority rule with few women. This is the deliberation condition that will be found on the board of directors for these companies; meaning that a woman’s voice may still not be heard despite having women on the board.

SB 826 was passed in the hopes of not only creating more productive companies but in creating a vision of a society where a woman's voice is as important as a man's. Hopefully, we can reach a point where that doesn't have to be mandated by the law.