Everything You Need to Know about Female Board Member Regulations

Arianna Huffington

The boardroom is beginning to look different than it did just a few years ago. With new laws sprouting up all over the country, the female board member will soon be ubiquitous in some states.  

In 2017, Equilar, a tracker of corporate governance data, reported 15% of board seats in the Russell 3000 (the largest U.S. publicly traded companies), were held by women. By 2020, Equilar found that about one in five board members are women.  

This is not a coincidence. The people in power want to see board diversity and they are demanding it. 

The Catalyst 

Two years ago, former California Governor Jerry Brown signed a law requiring any public company headquartered in California must have at least one female board member. At the time the law was passed about one-third of the 600 public companies headquartered in California had all-male boards. 

Companies that choose not to participate or neglect this new law, face a hefty one-time fine of $100,000. But the law doesn’t stop there.  

According to Inc., “By the end of 2021, companies with at least five board members are going to have to have at least two female directors. Companies with six board members will have to have at least three women among them. By that time, the penalty will rise to $300,000 for every ‘missing’ female board member.”  

This is the first law of its kind in the United States. Although it was tested by lawsuits, in 2020 the majority of public companies in California complied with the regulation. 

A Growing Movement 

Other states are following California’s lead by introducing similar legislation. Massachusetts lawmakers proposed a rule that requires public companies based in the state to have one female board member by 2021. New York, New Jersey, and Illinois are considering following in those footsteps.  

The corporate landscape also caught on to this appetite for change. 

In January, Goldman Sachs CEO David Solomon made a surprising announcement to CNBC. During an interview, he said that by the summer of 2020 the bank would no longer take companies in the U.S. and Europe public if they did not have one diverse board member.  

Solomon said, “I look back at the IPOs over the last four years and the performance of IPOs where there’s been a woman on the board in the U.S. is significantly better than the performance of IPOs where there hasn’t been a woman on the board.”  

Diversity pays

Since the California law passed, TheBoardlist, a company that connects women with board opportunities, reported an overall 20% increase in inquires.  

More Work to Be Done 

Although the movement is gaining traction, work remains.  

Crunchbase, not-for-profit Him for Her, and Kellogg School of Management recently conducted a study of 200 private companies with at least $100 million in venture funding and valuations of $500 million. Their analysis found 60% of those companies had all-male boards.  

Surprisingly, it was the venture-backed tech companies (that often have a reputation for being more progressive) that most often had boards without female members.  

Some California companies refused to comply with the law, opting to take the fine. As of March, “295 of the state’s 625 publicly held corporations required to file a 2019 Corporate Disclosure Statement– which reveals if they have complied with the 2018 law requiring at least one woman on their board – did not do so. And 48 of the 330 corporations that filed the statement didn’t have a female on their board.” 

What Does This Mean for Female Executives? 

It has never been a better time for female leaders to find board positions. Diversity and inclusion are not trending topics. With new laws being passed and the influential sway of Goldman Sachs, more companies will not just want female board members, they will need them.  

Male executives can encourage diverse boardrooms and actively recruit females to join them. 

Boards are changing, and all executives need to understand and recognize these shifts.