Get government out of the boardroom
At the end of last month, California Gov. Gavin Newsom signed a bill establishing quotas for minorities on the boards of every publicly traded company in the state. That’s on top of a law enacted in 2018 that implemented quotas for women on corporate boards.
The governor and his allies think they’re delivering wins for women and minorities. Thanks, Gavin, but we don’t need the help.
The new law, Assembly Bill 979, stipulates that any California-headquartered, publicly traded company must have at least one board member from an “underrepresented community” by the end of next year. By the end of 2022, corporate boards with between four and nine members must have at least two underrepresented minorities. And for those with nine or more members, at least three must come from an underrepresented community.
The underrepresented include anyone “who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.” Companies that fail to meet these requirements face a $100,000 initial fine and a $300,000 fine for each subsequent violation.
AB979 is a natural extension of Senate Bill 826, which created similar requirements for female board membership. By the end of last year, every publicly traded company in California had to have at least one woman on its board. By the end of next year, boards with six or more members had to have at least three female directors. Those with five members have to have at least two women among them; and those with four or fewer, at least one woman.
The premises of these laws are insulting. Every woman or minority elected to a corporate board will have to contend with the notion that they’re only there because the state requires it. Such tokenism undermines the quest of hard-working people for the respect and admiration of their peers.
Further, the quotas may well act like caps on women and minorities in the boardroom. Some companies are sure to comply with the letter of the law, rather than its spirit. If that happens, the law could push us even further away from more equitable representation.
Companies are already diversifying their leadership without the heavy hand of government. Women and minorities hold more than one-third of all corporate board seats for Fortune 500 companies and nearly 40 percent of those in the Fortune 100. Since 2012, the number of businesses with staff composed of at least 40 percent women or minorities has more than doubled.
They’re doing so because it’s in their business interests. A 2016 study of almost 22,000 global companies from the Peterson Institute for International Economics found that among profitable firms, “a move from no female leaders to 30 percent representation is associated with a 15 percent increase in the net revenue margin.”
I’ve been the CEO of the Pacific Research Institute for almost 30 years. I like to think that I was chosen to lead this organization because of my own skills and acumen — not because of my gender.
Newsom’s drive to micro-manage corporate boards may have unintended consequences. Firms currently based in California may relocate elsewhere. The third-worst business tax climate in the country, per the Tax Foundation; the highest sales tax; the highest gas tax; the highest marginal income tax rate; and now a state government that wants final say over the composition of the board of directors. What’s not to like?
California can ill afford to be driving businesses away. The state had to grapple with a $54 billion budget deficit this year.
Some Californians have taken up the fight against AB979 and SB826. Last year, the Pacific Legal Foundation filed a lawsuit against Alex Padilla, the Secretary of State of California, arguing that gender quotas for corporate boards violate the Constitution’s guarantee of equal protection before the law.
Let’s hope they succeed — and set a precedent for the challenges to AB979 that are sure to come.
Discrimination based on race, sexual orientation, or gender is never acceptable. Gov. Newsom and company may believe that their brand of discrimination has good intentions. But it’s discrimination nonetheless — and will harm some of the very people they claim to help.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All” (Encounter 2020). Follow her on Twitter @sallypipes.