California’s Effort to Boost Women on Corporate Boards Has Studies Behind It

When Harvey Weinstein was fired a year ago this week, commentators were quick to point out that all of his board members were men. Similarly, when Leslie Moonves was forced out of CBS last month, many noted that just three of the company’s 14 directors were women.

The #MeToo movement has raised a question that often follows corporate disasters: Could this have been avoided if more women were in charge?

The question took on fresh currency after last week, when California Gov. Jerry Brown signed a law mandating female representation on corporate boards. Norway, Germany, France, Malaysia and other countries have similar laws, but California became the first state in the U.S. to take that step.

Though the bill was approved as part of a package of “#MeToo” legislation, the rationale for it had little, if anything, to do with sexual harassment. Instead, supporters made a convincing business case for diversity, pointing to a raft of studies showing that companies with female board members do better financially.

“The proof of board diversity is that it generates higher profitability,” argued Mindy Bortness, president of the California chapter of the National Assn. of Women Business Owners, which sponsored the bill.

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Democratic Sen. Hannah-Beth Jackson, who authored the measure, made a similar case: “All the studies show that when you add a woman to a corporate board, companies are more productive, more profitable, more innovative, more transparent, and their governance procedures are more collaborative and open,” she said.

Gender diversity on boards is one of the most thoroughly studied areas of corporate governance. But there are, as yet, no studies linking gender diversity to a company’s handling of sexual harassment claims.

And while many studies have suggested a tie between board diversity and performance, the claim is open for debate. One study found that after Norway imposed a 40% board quota in 2003, it had a sharp negative effect on companies’ value.

“Although empirical research has drawn much-needed attention to the underrepresentation of women and minorities on corporate boards, it has not convincingly established that board diversity leads to improved financial performance,” wrote Stanford Law School professors Deborah Rhode and Amanda Packel in a 2014 paper that surveyed the literature on the subject.

Another key argument for adding women to boards is that they will bring an “outsider” perspective to decision-making and might be more likely to blow the whistle on wrongdoing. Studies have suggested that boards with female directors are more likely to fire the CEO for poor performance, and are less likely to take risks.

Patty McCord, the former chief talent officer at Netflix, is leery of such arguments. “Those are pretty broad stereotypes,” she says. “I was an executive at a fairly successful company for 14 years, and I did not find those stereotypes to hold true at all.”

“The proof of board diversity is that it generates higher profitability.”
Mindy Bortness, National Assn. of Women Business Owners

McCord wrote “Powerful,” a book on corporate culture, and now serves on the board of LendingClub. She argues that directors’ professional background may have more to do with their board performance than their gender does.

In a 2006 law review article entitled “Women Executives in Gladiator Corporate Cultures,” Marleen O’Connor argued that the women who rise to the top of corporations are conditioned to behave like the men around them. “In the end, rather than women changing corporations, one can argue that corporations are more likely to change women,” she wrote.

She also challenged the idea that women are more likely to speak up against wrongdoing. “Women may be more subject to consensus pressure than those firmly in the club,” she argued. “Viewed in this light, women may be even more yes-men than men.”

In a 2006 paper, “Critical Mass on Corporate Boards,” Vicki Kramer, Alison Konrad and Sumru Erkut argued that boards ought to have at least three female members.

With that number, “women start being treated as individuals with different personalities, styles and interests,” they wrote. “Women’s tendencies to be more collaborative but also to be more active in asking questions and raising different issues start to become the boardroom norm.”

The trio’s work influenced Jackson’s bill, which set a minimum of three female board members for boards of six or more by 2022.

The law applies only to public companies headquartered in California, so its direct effect will be felt more heavily in the tech industry than in entertainment. And it could also face legal challenges, as firms chartered in Delaware or other states likely will argue they should not be bound by California’s corporations code.

But if it holds up, the law will give researchers a golden opportunity to study what happens when women are at the helm.

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