California Governor Jerry Brown on 30th September’ 2018 signed a new law which states that any publicly held corporations whose offices are located in California must have at least one female director on the board of directors till the end of 2019 and the Corporations which do not comply to this law are subject to fines. The fines may vary from $ 100,000 for the first violation to $ 300,000 for second and subsequent violations.
With the introduction of the new law and increasing pressure to diversify the board culture, one-fifth of the seats of the boards of public corporations are now being held by women, as per a recent article published in WSJ. According to Equilar Inc., the share of female board members increased to 20% in the second quarter of this year in comparison to 19% from the previous quarter. Around 68% of the 94 public corporations have added at least one woman to the board of directors. Some recent appointments include Starbucks Corp. Executive Rosalind Brewer to Amazon.com Inc.’s board and former Apple Inc. retail chief Angela Ahrendts to Airbnb Inc.’s board.
The effects of this mandate have been equivocal, Big Investors stated that having a female director as a Board Member results in better shareholder returns whereas some women expressed concerns about being the only member in a male-dominated board. Women stated that they don’t know how long will they be the part of the board or will they be able to put their opinions and suggestions in a male-dominated boardroom. Having a diverse board culture has been the recent trend throughout the world, organizations have become open to having more female members in the board room as corporate directors. Some of the organizations are worried about the fact that to fulfill the mandates of the law of having 3 female directors in the board group will lead to a lack of talent that is required to be a board member. Whereas some organizations are ready to pay the fines rather than having a female member in the board room. A few conservative groups have filed a lawsuit alleging that the law is unconstitutional.
The law aims at improving the business and economic performance of the corporations in the state. Studies reveal that having a female director in the boardroom brings experience, perspective, and transparency and that organizations with female directors are more profitable and productive and outperform in comparison to the corporations having a male-dominated boardroom. Diversity in the boardroom is also believed as an opportunity for companies to boost their financial performance and increase shareholder value.
The law may face some legal challenges also, as it violates the equal protection clauses of the U.S constitution by discrimination based on gender. There have been debates that this law will conflict with the internal affairs doctrine where only one state has the authority to regulate the internal affairs of a corporation.
As stated by Governor Brown
“There have been numerous objections to this bill and serious legal concerns have been raised.
I don’t minimize the potential flaws that so might prove fatal to its final implementation.
Nevertheless, recent events in Washington, D.C.– and on the far side – create it crystal clear that a lot of aren’t obtaining the message”
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