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California Governor Jerry Brown signed a bill into law today that requires major companies with headquarters in California — including many household-name tech firms — to have at least one woman on their boards by next year, and depending on the size of the board, up to three women by 2021.
The law is the first of its kind in the U.S., and proponents say it’s needed to equalize the representation of women in corporate boardroom. Currently, a quarter of California’s publicly traded companies do not have a woman on their boards. Companies that fail to comply with the new rule face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.
The law already faces opposition from business groups, which could challenge the basis of preferential hiring toward women. In signing the bill, Gov. Brown acknowledged the bill’s “potential flaws” that could prove “fatal” to implementation, but nevertheless supported its passing, citing “recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message” around gender equality.
“Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America,” said Brown in a signing message with the statement. Brown also copied in his signing letter the U.S. Senate Judiciary Committee — the group which recently advanced Judge Brett Kavanaugh’s nomination to the Supreme Court despite allegations of sexual assault.
Currently a number of major tech companies — including Apple, Yelp, Facebook, Snap, Tesla and Intel — would be in violation of the law by having too few women for boards of their size. The law would also force California-based tech startups looking to go public to add at least one woman to their boards before doing so.
Just 16 percent of board members on tech companies in the Russell 3000 — a grouping of the 3,000 biggest publicly traded tech companies in the U.S. — are women, according to June 30 data from Equilar. Tech has only slightly better female representation than the average across industries, with 18 percent women board members. There are nearly 400 California-based companies on the Russell 3000 with all-male boards that could be affected by the new law.
Numerous studies have shown that companies perform better with increased representation of women on their boards, including one from MSCI which found that U.S. companies with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors from 2011 to 2016.
Will businesses take legal action against the new rules? Is it even enforceable? The California Chamber of Commerce, the largest business advocacy group in the state, said in August that it “places California corporations with executive offices in a legal predicament between satisfying the mandate of [the bill] without offending the U.S. Constitution, California Constitution, and Civil Rights law.”
This article originally appeared on Recode.net.
