October 1, 2018 / 8:12 PM / 2 months ago

Breakingviews - California boardroom gender quota is useful nudge

Financial Chief Executives wait to speak to the media at the White House after a meeting about the economy with U.S. President Barack Obama in the State Dining Room in Washington, March 27, 2009. REUTERS/Larry Downing

NEW YORK (Reuters Breakingviews) - California has come up with one possible solution to the male, pale and stale problem afflicting boardrooms. A law passed on Sunday requires public companies with headquarters in the Golden State to have at least one woman on their boards from next year. Tougher quotas in Norway have not obviously trickled down to broader groups. But board balance is a valid goal in itself.

In California, a quarter of public companies have no women directors, according to the narrative explaining the bill. Women hold only 15.5 percent of board seats in the state, below even the paltry U.S. average of 16.5 percent. Of the 75 largest firms that went public in the United States between 2014 and 2016, nearly half debuted with no female directors, according to 2020 Women on Boards.

Plenty of studies suggest there may be financial benefits to having more people with double-X chromosomes in positions of power. The California bill’s rationale cites Credit Suisse figures indicating firms with at least one woman director outperform those without, as measured by return on equity. Perhaps more meaningful for the denizens of the state’s Silicon Valley, a 2015 report by First Round Capital found that startups with female founders outperformed those led by all men.

One hope underlying California’s law may be that forcing a faster shift towards balance in the boardroom will have wider effects, for example on gender and pay equality for a company’s rank and file employees. A 2017 study of Norway’s board quotas for the U.S. National Bureau of Economic Research found no robust evidence that had happened. But it could take longer than the 10 years that have elapsed since the boardroom gender quotas became fully mandatory.

In any event, the same study found that the women appointed to Norwegian company boards after the reforms were more highly qualified than before, not less so as some critics of quotas fear will be the case. The gender pay gap at board level declined substantially, too. Those results don’t need further justification. Nor does California’s attempt – or any other idea – to nudge board composition toward the gender balance of the population as a whole.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below