California Leads Corporations To Equality

It has been almost a hundred years since women were given the right to vote, yet women are still struggling to bridge the gap in the professional arena. California comes in third in the United States for gender pay parity, trailing behind Florida and New York as the two states closest to reaching gender parity in the United States. Despite this, white women in California are typically paid $16,000 less than men per year when compared to the wages of white, non-Hispanic men, and the gap is even wider with women of color: Latina women are paid $41,000 less, African American women are paid $27,000 less than men. Women could cover years of their undergraduate degrees, countless hours of child care, or any other basic costs like rent, with the funds they would achieve if treated equally. In the corporate world, one out of every four publicly-held corporations in California do not have a single women sitting on its board. Overall, only 15.5 percent of all board seats in the state are held by women. In the United States as a whole, data reveals that women statistically receive more college degrees than men and make up about half of the workforce, but still only receive 80.5 cents for every man’s dollar. Equal pay may eventually be obtainable for women, but based on the current rate of the wage gap closing, it will not be until 2059. African American women will need to wait until 2124 for equal pay; Hispanic women will achieve it in 2233. In 2008, Norway was the first European country to implement quotas requiring 40 percent of board seats of all companies by threatening dissolution. This led the way for most European countries to implement some sort of quota to create gender parity on corporate boards. Implementations varied among fines, dissolution, banishment from paying directors, or guidelines that resulted in shaming without adherence. As a result, today there are over four to five times more female directors in Europe than in 2007. The California legislature is following suit, sparking a long-delayed debate regarding government infringement and the efficacy of forcing gender parity. California has tried to ameliorate this gap by passing SB 826, which requires publicly held corporations in California to have women on their boards.

The statistics on the wage gap are often dismissed with the claim that women, and in the same effect, people of color, simply choose to work lower-paying industries. However, a recent study demonstrates that, for women, there is an additional correlation with being paid less as a result of having a child. In addition, there is further reason to frown upon this argument that women choose their way into the pay gap because this unequal representation in these industries is truly a result of societal and cultural norms. These norms dictate the way women enter the workforce and in effect, cause the prevalence of women in certain low-paying industries. The gap between male and female pay persists even when adjusted for all other factors that may influence the data instead of just gender discrimination. This issue becomes cyclical when there is an overrepresentation of men in higher paying industries because women become dissuaded as social norms do not incorporate them into these positions. This pattern also becomes compounded the moment women have children, as more norms and expectations arise and, in effect, further influence their careers. The discrimination does not just lie in their salaries, but also in the way women enter their professional lives. SB 826 ignores these forces and provides a clear cut path around these them towards equality.

California took a first step in the United States with SB 826, which was spearheaded by Sen. Hannah-Beth Jackson (D-Santa Barbara) and Sen. Toni Atkins (D-San Diego). The bill was signed by Gov. Jerry Brown on September 30th, 2018 and states by the end of 2019, any publicly held corporation, domestic or foreign, that has principal executive offices located in California, is to have a least one female on its board of directors. By the end of 2021, the required minimum will be increased to two female directors on a five person board, or three female directors on a board of six or more. The California Secretary of State is charged with keeping track and publishing how many corporations are in compliance. If a company is found to be not in compliance, then fines can be imposed upon them. A fine would amount to a $100,000 one-time fine for the first violation in failing to file with the Secretary of State in time. If a second violation is committed, then there will an additional fine of $300,000. These fines that get accumulated will be then reallocated towards any financial burden needed for the implementation of the bill. The bill specifies that female is defined as an individual who self-identifies regardless of sex at birth.

SB 826 holds a lot of valuable effects on facilitating gender equality in the corporate world and according to studies, it can also improve company assets. The bill itself defines that it will “boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees, including retired California state employees and teachers whose pensions are managed by CalPERS and CalSTRS” by requiring women be on corporate boards. Incorporating women into leadership positions within companies not only boosts gender parity, but also holds other tangible benefits for the corporations themselves. The University of California, Berkeley conducted a study in 2012 named, “Women Create a Sustainable Future,” concluding that companies that had a higher proportion of female board members were more likely to incorporate sustainability into company policy. In addition, women in these influential positions were more likely develop companies that instituted strong governance structures incorporating high levels of disclosure and transparency. In 2013, California took a soft step towards gender equity and influenced several other states in the process with SCR 62, which encouraged companies to create “equitable and diverse gender representation on corporate boards” by advising a proportional representation of about 30 percent. Five states followed suit, one of which was Massachusetts in 2015, with a resolution encouraging similar measures and encouraging that companies disclose the makeup of their board seats and management positions, facilitating transparency.

However, SB 826 also sparked backlash, largely from people against government involvement in the corporate world, but also from those who worried about the unintended consequences of a quota system. Many argued that boards would start to promote unqualified women to avoid the hefty fines. This would defeat the equality-based initiative of the bill by turning women into pawns used to protect a company’s legal status. Another effect critics worry about is that even if companies do focus on promoting qualified women, then those women will be stretched thin across multiple boards so that quotas can be filled. The LA Times published a survey taken on the opinions of how the bill will take effect. These varied, but some of the negative responses indicated that the “bill’s quota will become a ceiling for firms, not a floor.” Other responses found the bill to be an issue because they wish for the government to remain uninvolved. People claimed that they would prefer alternatives, such as government-imposed incentives or tax breaks. An enforced quota was argued far too much of an overreach. Another grievance is that the bill focused on gender parity rather than the one percent issue where the power is allocated in the top financial tier. The Wall Street Journal claimed that “After the corporate frauds of the early 2000s, corporations were told they needed directors who are more independent of management and have more technical knowledge of the business.” This further highlights that people care more about corruption than gender equity, putting the bill at odds with its constituents. 

But rather than fret over hypotheticals, empirical data is already available from European nations that have enacted similar quota systems. Europe, too, was concerned regarding the effects of quotas on fabricated promotions and overextended female directors. To much surprise, these antagonistic predictions have not appeared in European companies after implementing the quota. Italy found that after implementing their 33 percent female board member quota, the “female directors at the biggest firms were more likely than their pre-quota predecessors to have professional degrees and qualifications.” The data argue that there has not been a lack of qualified women that would have incited unqualified and premature promotions. In addition, the feared phenomenon that board members would be spread too thing was not an issue specific to women: research determined that “15 percent of male directors sit on three or more boards; 19 percent of female directors do.” Both males and females find themselves subjected to this issue, and while it may be an issue in itself, it seems to be a larger system issue of corporate culture rather than quota-induced.

Most critics agree that gender equality needs to be achieved, however, the method towards that is still highly debated. Trends show that equality will not be a naturally occurring state anytime soon, so the question gets shifted towards where that change can be facilitated from. Either it will be from within, via business leaders themselves, or externally, by politicians creating legislation. Gender parity has not been a priority for business leaders, as other critical company-related issues will always be present, so the burden often falls on politicians. Perhaps a quota may not be a perfect solution, but there clearly needs to be measures that incentivize and facilitate equal workplaces for women. Other examples have been implemented and proved successful in European countries. Sweden, Finland, and Norway have made tax returns public, developing a sense of pay transparency. A European Commission report from 2017 stated that this initiative, “is important in order to promote gender-neutral wage-setting structures”. It must be noted that SB 826 does not encompass the racial disparities that are also extremely prevalent and in need of being addressed. Ideally, this bill will bring forth more serious attention to all other forms of inequality too. Change is desperately needed to close the glaring gender disparity in the United States and California is starting to lead that change. SB 826 is controversial in the way we reach equality for women, but it sets a new norm in California’s corporate world and eventually for the United States as well.

Featured Image Source: Bentley University