(CNN Money) — California just took a crucial step toward increasing the number of women on corporate boards.
State legislators passed a bill Wednesday that would require publicly-traded companies headquartered in California to place at least one woman on their board by the end of next year — or face a penalty.
Research shows that female representation on boards is key for women’s advancement in corporate America. Women on boards are more likely to consider female leaders for the C-suite and choose more diverse candidates for the board itself.
If the bill is signed into law by California governor Jerry Brown, it would be the first state to take such a step. Unlike some European countries, the United States doesn’t mandate female representation on company boards. A majority of companies in the S&P 500 have at least one woman on their boards, but only 25% have more than two, according to a study from PwC.
But setting quotas for representation can be controversial, says Vicki W. Kramer, lead author of the landmark 2006 study, “Critical Mass on Corporate Boards.” Opponents argue that pressure from quotas will lead to unqualified female members and potential discrimination against male candidates.
When quotas are not set, however, companies fail to diversify their ranks enough, Kramer says. She points to more “aspirational” legislation in other states, like in Pennsylvania, where a 2017 resolution urged both public and private companies to have a minimum of 30% women on their boards by 2020. But without teeth in the law, Kramer says, better numbers won’t follow.
“That’s the big thing: will it change the numbers?” Kramer says. “It takes a lot of pressure, but that has to be sustained pressure and so far, it hasn’t been enough.”
Kramer cautions this legislation — if it passes — is only a starting point and it’s a weak one compared to the laws in Norway and other European countries, which require a certain percentage of women on boards. For larger Norwegian companies, the legislation requires that women make up as much as 40% of the board.
“What we see in Europe is once these mandatory quotas have been in place, there’s been a significant increase,” says Anna Beninger, senior research director and corporate engagement partner at Catalyst, a nonprofit studying women and work. “In essence, when organizations are required to make progress, required to follow these regulations, they do — and the progress happens.”
“One-fourth of California’s publicly traded companies still do not have a single woman on their board, despite numerous independent studies that show companies with women on their board are more profitable and productive,” California state Senator Hannah-Beth Jackson told The Wall Street Journal on Wednesday when the legislation passed. “With women comprising over half the population and making over 70% of purchasing decisions, their insight is critical to discussions and decisions that affect corporate culture, actions and profitability.”
In recent years, advocates have been pushing for privately-held startups to add female and minority board members. Airbnb just added its first female board member this month, after its CEO promised to add at least one woman to its board in 2018.
“People don’t change what they’ve always been doing easily,” Kramer says. “The way people get on boards is so much of who you know and who you’re comfortable with, and who people know is still the same people they play golf with and do business deals with. I don’t think without real pressure and real consequences we’re going to see changes.”
The California legislation would also require companies with five directors to add two women by the end of 2021, and companies with six or more directors to add at least three more women by the end of the same year.
Kramer’s research shows that putting just one woman on a board still isn’t enough to affect serious change.
“One is definitely not enough,” she says. “But at least with companies that have none, to at least just get one — and then let’s go from there. But one is not enough. One is a token.”