State Lawmakers Push for More Diversity on Boards

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By Michael Greene

Aug. 4 — Some state lawmakers are encouraging boardroom gender diversity by setting voluntary goals for companies to meet.

A Massachusetts and Illinois resolution, like a resolution that passed the California Senate in 2013, set a voluntary goal for corporate boards with nine or more members to have a minimum of three women directors within a specified time period.

However, the resolutions set different target goals for companies with fewer than nine directors.

All cite several studies that find a correlation between boardroom gender diversity and enhanced corporate performance. Sources interviewed by Bloomberg BNA hold differing views on how impactful the efforts might be, but agreed that they will at least raise awareness regarding the under-representation of women on U.S. corporate boards.

Massachusetts, Illinois

Last week, the Massachusetts Senate passed a non-binding resolution (S.1007) encouraging companies doing business in the state to adopt policies and practice designed at increasing gender diversity in their boardrooms and senior management groups, and to set goals to measure their progress. The resolution, which unanimously passed the state's Senate July 29, will now be considered by the state House of Representatives.

Also in May the Illinois House of Representatives passed a similar resolution that sets voluntary goals.

Massachusetts State Sen. Karen E. Spilka, (D-Ashland) who sponsored the resolution, told BBNA that she believes her state's resolution is an effective mechanism to raise awareness about increasing gender diversity on boards of directors. “Research has shown that this is not just a women's issue, a family issue, or even a men's issue. This is a business issue.”

Glacial Gains

A lack of gender diversity at the C-suite level has been a persistent source of criticism in the U.S., among other countries. Both institutional and activist investors, along with other groups, have lobbied for more gender parity on corporate boards. However, despite this push, progress in the U.S. has been slow.

According to a February EY Center for Board Matters report, the proportion of women on boards has increased only 5 percentage points over the last 10 years. The report also noted that only 16 percent of S&P 1500 board seats are held by women—“less than the proportion of seats held by directors named, John, Robert, James and William.”

There also does not appear to be consensus on the best way to improve director diversity. In Europe, binding gender quotas are becoming more prevalent, whereas other countries have used voluntary targets as a way to address this issue.

Raising Awareness

While the states' resolutions are non-binding and do not legally require businesses to take action, they can still have an impact in improving boardroom diversity, according to Roberta D. Liebenberg, a senior partner at Fine Kaplan and Black and co-founder and chairwoman of DirectWomen, an organization that identifies and supports highly qualified and experienced women attorneys for service on the boards of public companies.

“Unlike certain other countries, there is no realistic prospect that the United States or any individual state will mandate gender quotas in corporate boardrooms. Resolutions such as these raise awareness and spur dialogue on the need to increase the number of women directors,” she said in a statement e-mailed to BNA. “There is a growing recognition throughout the country that boardrooms should reflect the broad diversity of society at-large as well as companies' own employees, shareholders and customers. Fortunately, corporate boards that remain ‘male, pale and stale' are becoming increasingly anachronistic.”

According to Liebenberg, California has seen progress in the representation of women on boards over the last two years. She also noted that the fact that Massachusetts and the California resolutions passed with overwhelming support shows that “the goal of achieving gender equality on boards is not a partisan issue, nor is it a women's issue—instead, it is a moral and business imperative.”

Improving the Bottom Line?

However, there does not appear to be consensus on how much or what effect these resolution will have on improving gender diversity. Kimberly D. Krawiec, a professor at Duke University School of Law, told BBNA that she expected such resolutions to have limited effect, not only because they are nonbinding, but also because they presumably apply to smaller companies which tend to have less-diverse boards.

“The largest companies tend to incorporate in Delaware, those incorporated in [Massachusetts] are likely smaller and, as such, would be predicted to have less diverse boards,” she said.

To the extent that the resolutions are going to make a difference, it will be in signaling that this is something that matters. For the most part, businesses are already good at figuring out what matters most to relevant constituencies, such as customers and stockholders, she said.

Krawiec was also skeptical that such resolutions would improve the bottom lines of companies. If what states think they are getting out of this is just an attempt at equal diversity in the boardroom because they value it as a social good then that is fine, she said. However, if they think they will get more profitable companies out of it, then I think they are mistaken.

Cumulative Effect?

However, Krawiec said that these resolutions may contribute to changing the notion of what the appropriate mix of people in the boardroom should look like.

At the same time the more people are talking about board diversity across the world, not just in the U.S., the primary effect is a cumulative one—that over time it becomes increasingly unusual or one might say unacceptable to not have any women in the boardroom, she said.

“State resolutions such as these are important because they shine a spotlight on the continuing under-representation of women on boards, and express the view of large state legislatures that continuation of the status quo is simply unacceptable,” Liebenberg said.

Sen. Spilka said that if we don't address this issue in a conscious matter, her great grandchildren will still be talking about it.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The Massachussets resolution is available at https://malegislature.gov/Bills/189/Senate/S1007.

The Illinois resolution is available at http://tinyurl.com/nqkha8p.