Making California’s New Gender Inclusion Law for Boards of Directors A Success

By Cyrus Mehri

Governor Brown and the California Legislature took a major step to advance the U.S. economy by requiring publicly traded companies based in California to have at least two female members on their boards of directors by 2021. The wisdom of this new law is beyond reproach.

As the former Chair of the Securities and Exchange Commission — Mary Jo White — declared two years ago, “I have seen first-hand what the research is telling us — boards with diverse members function better and are correlated with better company performance. This is why investors have — and should have — an interest in diversity disclosure about board members and nominees.“

By expanding the gender diversity of their boards, California companies will have a competitive advantage over companies based elsewhere. Several studies have linked gender diversity and increased innovation. A key 2014 study by Credit Suisse found that women on boards improved business performance on key metrics such as stock performance and earnings.

Yet despite these unmistakable advantages, female membership on boards of directors remains stagnant. Throughout this decade approximately 2/3 of U.S. boards of directors have had either no female members or only one female member of the board. This is an irrational outcome.

Companies are acting against their interest in terms of stock performance, innovation and earnings, because too many companies simply don’t know how to achieve a gender diverse board — nor, for that matter, do they know how to achieve a racially diverse board.

Based on my first-hand experience working with organizations to address organization and board diversity through the Rooney Rule and other key reforms, I know that there is a road map for success.

California companies can take concrete steps today to meet and exceed the new state benchmarks for gender board diversity, first by starting to ensure criteria for board membership is flexible enough to cover all the skills and attributes that succeeds in a competitive global economy. Board members should collectively represent a broad range of skills, experience and perspectives, which will help cast a wider net. Companies should also consider expanding the size of its board of directors.

When there is a vacancy on the board of directors, it’s important to commit to interviewing in-person a diverse set of candidates that includes at least two women and one person of color for each vacancy. This process should be included in a well- thought out nominations policy and guidelines tailored for the company. As we learned through experience with the Rooney Rule, a diverse pool of highly qualified women and people of color isn’t enough to move the needle. It matters who gets in the room to meet with the final decisionmakers.

Work through affinity groups and community and industry partners and develop a Ready List of potential board candidates who can strengthen a board of directors by bringing diverse life and work experiences and valuable perspectives. This includes going beyond the C-suite and considering experienced and talented leaders in the non-profit, public and education sectors. It also includes considering younger individuals earlier in the careers.

Companies need to also make sure that board nominating and governance committees are fully trained on interviewing a diverse slate of candidates and carrying out the policies, mission and goals for building equity and inclusion across the organization.

Finally, establish an effective communications strategy for rolling out a commitment to seriously interview and consider diverse candidates for the board of directors. This creates public accountability and make it easier to attract great candidates who bring new perspectives and experiences.

This road map for success is achievable right now. There are existing resources to draw on. There is no reason to wait until 2021 to advance innovation and earnings through the power of diversity.

Cyrus Mehri is a co-founder of Working IDEAL and a founding partner of the law firm Mehri & Skalet. Working IDEAL advises companies and other organizations of all sizes on diverse talent, fair pay and inclusive workplaces. Cyrus pioneered the development of the Rooney Rule in the NFL and continues to advise companies, nonprofits and universities on how to implement this policy effectively and successfully increase leadership diversity.