By Coco Brown Founder and CEO
California Bill 826, which would require women to be on the board of any public company headquartered in California, is sitting on California Governor Jerry Brown’s desk. It calls for boards to have one woman by the end of 2019, and by the end of 2021, it would require two women for a five-person board and three women for a six-person board. If I were Governor, I would vote to enact this bill, despite its numerous flaws. But I would be voting for it with a heavy heart, disappointed that it has come to this.
Here’s why: women can, and should, be earning board seats based on their own merit. Companies can, and should, be building thoughtful boards that are stronger and more diverse than ever. Achieving this isn’t difficult when we shift the conversation away from a talent pipeline issue, and instead focus on the board construct issue. Companies should be constructing boards with leaders that offer contemporary experience, from a wider range of roles than just the traditional (and now antiquated) construct of primarily CEOs and CFOs. By focusing on the skill sets and perspectives that can truly lead a company in today’s modern age, boards would naturally be more diverse.
As founder and CEO of Athena Alliance, an organization dedicated to seeing that women can lead at their highest level of impact, I work with women every day who are qualified to be on boards. But first they need boards to value roles beyond the CEO and CFO.
Are we making progress? No.
Everyone from major media outlets to CEOs across industries of all sizes—they want to believe we are making progress. Companies have invested in roles such as Head of Diversity; they’ve lined up inspirational speakers and progressive workshops; they’ve formed committees; they’ve performed compensation analyses, you name it. It’s no wonder that so many leaders look at these positive actions and feel reassured. We’re moving in the right direction, they think.
How do I know we aren’t making progress? Because the data says so. The media and almost anyone tracking “progress” focus only on the top companies. This tells us that women hold 22 percent of S&P 500 board seats (or that 22 percent of board seats are held by women in companies with $50 billion or greater market caps). When you look at things that way, it doesn’t sound too terrible. Yet, these figures only speak to giant, global companies—they don’t represent the masses.
Here’s another way to look at it. Research we conducted with The Bahnsen Group shows only 135 companies (just seven percent!) on the NYSE and 43 companies (less than 2 percent!) on the NASDAQ have market caps greater than $50 billion. And, as a 2018 study by the Business Journal found, the reality is that women hold only 11 percent of board seats for companies that fall below $1 billion market cap (68% of NASDAQ companies!), and only 9 percent of board seats for companies under $500 million market cap. These figures mirror reality for the majority of companies. Who can confidently call this progress?
A corporation should conform to the values of its community
The importance of board diversity extends far beyond maximizing profits and governance. Corporations have a responsibility to represent their communities and integrate with them. This is necessary to secure long-term company value, sustainable purpose, and address valuable matters of Environmental, Social, and Governance Criteria (ESG). Boards that are mostly white, older men who are retired CEOs or CFOs will not achieve this.
Some argue that Bill 826 interferes with the corporate structure that allows for corporations to be governed by the laws of the state in which they are incorporated. I’m not an expert in corporate law, nor will I pretend to be, but I will point out that corporations religiously dodge laws for tax breaks and other benefits. It’s contradictory for corporations to pick and choose the laws they feel “interfere” with governance. Instead, corporations should focus on serving their communities and leading with purpose.
Larry Fink, CEO of BlackRock, with $6.3 trillion assets under management, said it well in his recent letter to portfolio company CEOs. He called on them to create more diverse boards because “society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” Through Bill 826, California calls upon corporations to operate in accordance to its stated values.
Diverse boards will naturally include women
My proposal: rather than companies fixating on women (or even women focusing on women), focus on building thoughtful, strategic board structures that reflect modern challenges and opportunities.
To form smarter boards, companies must look at their greatest imperatives and their greatest threats. They must consider the expertise that can help them achieve these imperatives. If more companies were honest with themselves about the real skill sets and expertise they require, then their board compositions would shift to include roles such as chief marketing officers, chief customer officers, chief human resource officers, chief medical officers, and so on. And guess what: more than one-third of the executives in these roles are women (whereas women are only six percent of CEOs and 11 percent of CFOs).
It’s time that companies widen their view on what skills are critical in the boardroom. By doing so, companies would naturally open the door wider, inviting women to the table, as well as men of different backgrounds and ages. It wouldn’t be about avoiding a fine. It wouldn’t be about checking the box. (Frankly, it wouldn’t even be about doing the right thing, but there is that to consider, too).
It would be about building strong, healthy businesses.