Why More Women aren’t on Corporate Boards

Women in leadership roles have the expertise that would be extremely valuable to corporate boards that today face myriad business and culture challenges. And yet one-fourth of California’s public companies have no women on their boards, and the majority have only one woman director.

Gov. Jerry Brown can fix this by signing Senate Bill 826 by Sen. Hannah-Beth Jackson, a Santa Barbara Democrat. This bill would require that the roughly 760 California-based public companies have at least one woman director on their boards.

Numbers help show why this bill is needed:

• Of the 3,645 public company board seats in California, only 565 are held by women.
• As of Dec. 31, 2017, women held just 15.5 percent of the seats on corporate boards in California, lagging behind the national average of 16.5 percent on the Russell 3000.
• Los Angeles, Orange, and San Diego counties are each tied for the lowest percentage at 12 percent.

Why? Because the traditional way board searches are handled leaves very little room to include women candidates.

As the owner of a retained executive search firm, I know how board searches are handled behind closed doors. Open seats are rare because few boards of public corporations have term limits, and only half have age limits, generally at age 75.

Nominating and governance committees of corporate boards select new directors, who are later approved by shareholder proxies. And members of these committees prefer candidates they know will fit into the dynamic of their board.

They want to be confident in advance how that person performs on a board and interacts with board members and management. Will he or she bring added value, or be disruptive?

They also want to impress Wall Street by naming former or sitting chief executive officers to join their boards. If no sitting CEO is available, nominating committees consider the next level down—senior executives or business owners, and that’s where women candidates could be found.

Nominating committee members may engage a search firm. But most often, the search firms are paid only to vet the short list of candidates the board already feels comfortable with. Firms are rarely asked to find outside candidates who are strangers to the board members.

The primary roadblock for women getting on boards is an entrenched, proactive line-up of men who feel entitled to their friends’ board seats. These seats are lucrative. Corporate board members receive from $75,000 to $250,000 annually, half paid in stock which grows as the company grows.

Men spend years courting mentors and sponsors to get on the list of names compiled by the boards’ nominating committee.

All this ignores shareholders’ best interests. Studies from Credit Suisse, McKinsey and others show that publicly held corporations are more profitable and productive when women serve on the boards.

Board members set the tone from the top, providing strategic guidance and risk monitoring that affects management, employees, customers, and shareholders.  Women present a defining positive image to internal and external audiences.

In recent years, shareholders including large institutional investors such as the California State Teachers’ Retirement System and the California Public Employees’ Retirement System have become more vocal, urging the companies they invest in to add women directors.  So do individuals whose retirement savings are invested in publicly held companies. But that activism is not enough.

Senate Bill 826 offers a reasonable solution. It requires a board with no women currently to add a seat for a woman if there is not an open seat caused by a retirement in 2019 and to include two more women by end of 2021.

Gov. Brown’s signature on Senate Bill 826 would open more than 100 corporate board seats in 2019 and as many as 400 seats by the end of 2021.

These seats must be filled not by cronies, but by extraordinarily accomplished businesswomen who will help ensure the companies’ success. Shareholders deserve the best possible board members governing companies where they invest.  The state will benefit when companies perform at their best, and the workforce will be uplifted by seeing women on the board.

(Betsy Berkhemer-Credaire is the chief executive officer of Berkhemer Clayton Retained Executive Search in Los Angeles, [email protected]. She wrote this commentary for CALmatters.)

-cw