While the new CA law does not apply to private companies, it might serve them well to consider the chatter surrounding the matter and take similar actions.
California Senate Bill 826 went into effect January 1, amending the Corporations Code, now requires at least one woman on every public company Board by year end or face a $100K fine. See the full text here https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB826
Good, bad, right, wrong – doesn’t really matter now that it’s the law. Private companies can choose to ignore it, or see it as the direction their competition will be taking.
Numerous studies have been splashed about touting findings of higher profits and greater return on equity for those companies that have women on their boards. Generalized explanations suggest that companies with women on the Board:
- Hold the CEO more accountable
- Employ higher ethical standards
- Are more detail oriented and thorough in vetting threats and opportunities
Lesser publicized studies refute such gender correlation.
Credit Suisse – 2-4% increase in ROE with one woman on the Board – but gender not necessarily causation
reference https://www.credit-suisse.com/corporate/en/articles/media-releases/42035-201207.html accessed on 2/11/2019
MSCI – ROE 9% better and EPS 29% better when 3 or more Board seats were held by women
(study analyzed US companies over a 5 year period, 2011-2016) reference
Docusign – 4.5% increase in stock price when they announced a new female Board Chair in 2018. Three of their
11 board seats are held by women. Reference
Free Market competition would suggest that the law isn’t necessary – that consumers, shareholders and investors are demanding Board room diversity to ensure profits and innovation.
Competition is also requiring diversity in a much broader scope (age, gender, race, etc) -companies are taking queues from and invest in younger generations for digital skillsets and perspectives on e-commerce and marketing. Diversity equates to agility in addressing rapid technology advancements, globalization, regulations, management turnover… ever evolving business challenges. Diversity, in other words, keeps companies current and relevant.
This new trend is also requiring companies go beyond their known networks – to case a wider, deeper net in their search for talent.
Private companies thinking of going public in the future would be wise to recruit female board members now.
Wether for PR purposes or to spur innovative thinking, capture attention and or marketshare, embracing these new practices and incorporating “Diversity” into your Board of Advisors and staff is certainly worth considering.
In the end, it’s about the business case and being able to best serve your constituents. Take from this what might serve your private company well!