April 27, 2018
Pushing past ongoing investor efforts to increase diversity on corporate boards through issuer engagement and shareholder voting, the California State Legislature is considering mandating that all public companies headquartered in California have at least one female board director. The bill (SB 826), authored by Sen. Hannah-Beth Jackson (D), would require that public companies have at least one female director by the end of 2019 and at least two or three (depending on board size) by 2021—risk paying a fine. Even if the bill does not become law, it is indicative of rising pressure on companies to increase board diversity quickly. Institutional investors and pension funds have been focusing on board diversity for some time, both in terms of gender and experience, with BlackRock calling for all its portfolio companies to have at least two female directors, and the New York State Common Retirement Fund vowing to vote against directors of boards with no women. However, this is a far cry from a legislative mandate, and there has been little investor support for European-style quotas. As State Street Global Advisors' Rakhi Kumar noted in a recent Wall Street Journal article, "You don't want to create unintended practices." State Street voted against hundreds of directors last year at companies that failed to make "any significant effort" to add women to their male-only boards, but reported that 152 companies they engaged with added at least one female director.