Women belong in the boardroom — but not because the government forces it

California has passed a bill that would, if signed into law by Gov. Jerry Brown by Sept. 30, force every publicly-traded company in the state to place a certain number of women on their corporate boards.

The legislation’s proponents are sending a clear message that women do not have the qualifications to make it onto corporate boards on their own. That should infuriate every woman in the country.

Senate Bill 826 would require all publicly-traded companies “whose principal executive offices” are in California to have at least one female board member by the end of next year. Boards with five members would have to be at least 40 percent female by the end of July 2021. Those with six or more members would have to have at least three women.

But that’s only half the story. To add women to their boards, many companies would have to remove men. Not due to malfeasance. Not because of unethical behavior. Not because corporate bylaws were violated. Simply because of their gender.

Companies that do not comply will be fined $100,000 — and up to $300,000 each for multiple violations.

Should the legislation become law, every woman elected to a board to meet the requirement will have to live with the stigma of having secured her position by force of law — not the force of her qualifications.

The women who wrote the bill, state Sen. Hannah-Beth Jackson and state Senate President pro tempore Toni Atkins (both Democrats), cannot be unaware of this inevitability. They also cannot be so naive to think that in some cases, unqualified women would be elected to corporate boards. Rather than advance the cause, they will set it back.

California is the first state to pass gender-mandate legislation. But Japan, Norway, France, and Britain already have boardroom quotas. What’s next? Racial quotas? Ethnic quotas? Union representation? The list of possibilities is nearly endless.

Mandating that women be represented on corporate boards may not produce the results lawmakers are expecting. Companies may decide to comply with the letter of the mandate, rather than looking to go beyond it. They might even marginalize, to the extent they can, women they were forced to elect.

Legislators also seem to forget the legal boundaries in place to prevent them from taking their political power too far. They might wish that every corporate board in California is filled with women. But the state has no legal authority to tell companies whom they can and cannot elect to their boards. It’s arrogant for lawmakers to think they are free to issue commandments to private businesses to satisfy their personal aspirations. Companies are almost certain to respond with lawsuits.

There are other legal entanglements, too. A coalition of business associations including the California Chamber of Commerce and several city and regional chambers alleges that SB 826 violates the law. “The U.S. Constitution, California Constitution, and California Civil Rights law all prohibit a business from engaging in the type of consideration SB 826 mandates,” says the coalition in a letter to the California Senate. “This places California corporations with executive offices in a legal predicament between satisfying the mandate of SB 826 without offending the U.S. Constitution, California Constitution, and Civil Rights law.”

Three-fourths of public companies in California already have at least one female director. Egon Zehnder’s 2016 Global Board Diversity Analysis reports that even without government quotas, 95 percent of America’s corporate boards have at least one female director.

These companies have appointed women to their boards not because of government mandates, but because it’s in their economic interest to do so. 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.”

California’s proposed micromanagement of corporate boards may even backfire, if companies move their corporate headquarters out of California. History is littered with government mandates that delivered the opposite of their intent. Let’s hope California doesn’t add another example to the heap.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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