Board Diversity Requirements Could Create Talent Gap

March 22, 2019

The new California law requiring companies to have at least one female director by the end of 2019 and at least two (for boards of five members or fewer) or three (for boards of six members or more) by July of 2021 will create a gap of at least 692 female directorships, according to a Bloomberg analysis.

Staggering numbers:  The article also extrapolated from California companies to the entire Russell 3000, discovering that "if every state were to adopt California's lead," companies would be looking for an astounding 3,732 female directors within just a few years—an almost 75 percent increase in female board seats.  Equilar's most recent estimate for Board gender parity (sans a legal mandate) is 2034, moved up from its estimate of 2055 just three years ago.  This is largely due to an acceleration of female directorships, which reached 18.5 percent of the Russell 3000 in the fourth quarter of 2018.

Potential legal challenges:  Critics have raised legal impediments to the California rule, claiming it violates equal protection under the 14th Amendment.  An additional argument contends that the rule unconstitutionally applies to companies based but not incorporated in California, though the Bloomberg article notes this could be mostly resolved by Delaware passing a similar measure.  However, there has been little formal pushback to date, possibly reflecting concerns over negative public reaction.

How to fill the gap:  As has been frequently noted by diversity experts, achieving gender parity on boards may require a re-visioning of the ideal board candidate, including looking beyond the traditional path of current or former CEOs or other C-Suite executives and focusing on expertise rather than board experience.