Companies with women on their boards averaged 14% net income growth– outperforming comparable corporations of all-male boards

The west coast is home to some of the most powerful corporate boards– and before 2019, many of those board seats were held completely by men, but California’s Senate Bill 826 (SB826) is working quickly to change that, according to new data from the California Partners Project.

The new law, also known as “women on boards,” established new required guidelines for gender diversity on the boards of California’s public corporations. 

In September of 2018, Gov. Jerry Brown signed SB826 into law, making California the first state in the US that required at least one female to be on the board of all publicly held corporations whose executive offices reside within California.

The Senate bill 826, which took effect in 2019, allowed such corporations until the close of 2019 to fill one seat on the board with a woman. Failure to comply authorizes the secretary of state to impose six-figure fines on these companies– as with the new 2021 requirements of the bill that increase the number of women needing to be on board from 1, to 2 for every 5 members, or 3 for every 6.

Though there has been some pushback about the bill being unconstitutional by some, it currently has not been ruled that way, and the few suits filed against it have been dismissed. It will likely continue as planned through 2021.

The state of California has seen great progress with the 2019 requirements of S. B. 826. In fact, 2018 brought 176 women onto the board of directors of such companies, and nearly doubled that in 2019. 

Although this growth is great, there are still approximately 15 companies out of 650 that have failed to fill at least one female seat on their board of directors. On the other hand, some companies far exceed requirements such as e.l.f. Cosmetics, and GAP Inc. who have 5 or more women on their boards.

Still, a vast number of companies still need to meet the 2021 requirements– moving from one woman board member to at least 2 or 3 depending on the board size.

Adding one woman alone was a start, but it isn’t enough– the issue is gender parity on corporate boards– something that multiple studies, such as the 2017 Equilar Gender Diversity Index, found could take 40-50 years to reach without taking proactive measures. Research also shows that the benefits that female board members bring to the table are most effective when boards go from one or two females to at least three.

According to a report entitled “Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance” finds that reaching the “critical mass” of women on boards creates an environment where women are no longer seen as outcasts, but rather as a substantial part of the processes, tasks, and discussions of their board.

If the issue of gender inequality in itself isn’t convincing enough, companies should take into consideration the increasing studies that continue to show the positive impact that women on corporate boards have on business and its functions.

A six-year study conducted by Credit Suisse included over 2,000 companies worldwide, and research found that female participation on boards directly correlates with higher returns, higher valuations, and higher payout ratios. 

More specifically, the study found that over a six-year period, companies with women on their boards averaged 14% net income growth– outperforming comparable corporations of all-male boards, whose average net income growth was 10%. 

Along with financial growth, research also shows that women on boards positively affect organizational innovation, workforce engagement, and productivity– according to a 2016 McKinsey and Company study.

“Yet another glass ceiling is shattered, and women will finally have a seat at the table in corporate boardrooms– with numerous independent studies showing that corporations with women on their boards are more profitable, SB 826 is a giant step forward for women, our businesses and our economy,” stated Senator Jackson.

Although California was the first state to have legislation in place like SB826, the federal government is considering implementing regulations to require gender and racial diversity on corporate boards. Meanwhile, many states have already enacted, or are considering gender diversity regulations and disclosures on corporate boards.

 “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” stated Gov. Brown in his signing letter.