California Just Took A Big Step Towards Increasing Gender Diversity In Corporations

The move is unprecedented.

California recently took a big step towards passing legislation that could significantly increase gender diversity on company boards in the state. On Wednesday, state legislators passed a bill that would require public corporations headquartered in California to appoint at least one woman to their board of directors by the end of 2019. 

If the unprecedented bill — which was first introduced by California senators Hannah-Beth Jackson and Toni Atkins — becomes law, companies in the Golden State would have to meet next year's deadline to add a female member to their board or face a financial penalty. By the end of July 2021, boards with five members would be required to have at least two women, while boards with six or more members would have to feature at least three women.

Though research overwhelmingly points in favor of gender diversity in corporate settings, the number of women on company boards in California and across the country is still disappointingly low.

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"One-fourth of California's publicly traded companies still do not have a single woman on their board, despite numerous independent studies that show companies with women on their board are more profitable and productive," Sen. Jackson said on Wednesday, according to The Wall Street Journal. "With women comprising over half the population and making over 70 percent of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions and profitability."

Data has shown that having women on corporate boards is not only instrumental in advancing gender equality in corporate America, but can also have long-term benefits for companies both financially and otherwise. The bill cites several of these studies, including one by financial firm MSCI that concluded that "U.S. companies that began the five-year period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period."

The bill also points out that companies with such representation on their boards tend to have lower debt, be more risk-averse, and boast stronger stock performance than those without. "More women directors serving on boards of directors of publicly held corporations will boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees, including retired California state employees and teachers whose pensions are managed by CalPERS and CalSTRS," the bill reads. 

California Gov. Jerry Brown has until Sept. 30 to sign the bill. Should it become law, California would be the first state in the nation to take such a momentous step in mandating representation of women on company boards. The European Commission has also recently taken steps to push for increased gender diversity among the senior ranks of public corporations. 

Cover image via  Stephen Cobur / Shutterstock.

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