September 6, 2020; San Francisco Chronicle, Los Angeles Times, and CalMatters
If Governor Gavin Newsom (D) adds his signature to join majority votes in both houses of the state’s legislature, California will become the first state in the nation to require corporate boards to include BIPOC members.
The Los Angeles Times details the requirements laid out in the bill (AB979):
The legislation would require corporate boards to include at least one board member by the end of next year who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as gay, lesbian, bisexual or transgender.
The measure also requires corporate boards, by the end of 2022, to include a minimum of three directors from underrepresented communities if the board has nine members or more. If a board has five to nine members, it must have at least two directors from underrepresented communities.
The lack of diversity in board leadership is well known. According to the L.A. Times, the lawmakers who sponsored the legislation “cited a 2018 study by Deloitte and Alliance for Board Diversity that found that out of 1,222 new board members of Fortune 100 companies, 77 percent were white. In addition, the [Latinx] Corporate Directors Association released a survey last month that said 87 percent of boards for California corporations lack [Latinx] representation.”
Legislators supporting the bill made it clear that the time for action is now. Patrick McGreevy, writing for the L.A. Times, reports that Assemblywoman Cristina Garcia (D) believes “the state has encouraged corporate boards to become more diverse, but insufficient progress has been made.”
“By ensuring diversity on their boards, we know the corporations are more likely to both create opportunities for people of color and give them the support to thrive within that corporation,” Garcia observes.
The twin crises of COVID-19 and police violence have made the evidence of structural racism in all of its forms impossible to ignore, and many state legislators are no longer willing to trust that voluntary action would be deep enough or fast enough. According to Maeve Richard, a former assistant dean at Stanford’s Graduate School of Business, speaking to CalMatters, “We need to do something about it.”
Richard said some companies rely heavily on their social network, which often leads to a predominantly white board of directors. Companies…should use objective criteria to ensure their boards have qualified and diverse members, adding that government can play a role in creating a more equal system.
Assemblyman Chris Holden (D), another bill sponsor, was clear about his motivations: “Corporations have money, power, and influence. If we are going to address racial injustice and inequity in our society, it’s imperative that corporate boards reflect the diversity of our state.”
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“There’s no question this bill pushes the envelope,” Holden adds. “Legislation that shakes up the status quo, especially when it comes to dismantling systemic racism, will always face challenges.”
Those challenges have already begun, reports the San Francisco Chronicle, where Vincent Intintoli, an associate professor of finance at Clemson, cites the practical limitations of this strategy. “You can still have groupthink among a diverse set of individuals,” he notes, and “a chief executive could appoint board members from underrepresented groups merely to avoid the…fines set out in the bill, without shifting the perspective of the group.”
There is also the threat of a lawsuit. Anastasia Boden, a senior attorney at the nonprofit Pacific Legal Foundation, well known for its libertarian worldview, indicated it would consider bringing or supporting a legal challenge if the measure becomes law.
“Nobody’s opportunities should be determined by the color of their skin or their sex or sexual orientation,” Boden says. “Racial quotas are the most pernicious way to go about resolving those problems.”
The California bill directly addresses for-profit organizations, but the challenge it highlights is also acute in nonprofit organizations. Recent research has found that 80 percent of US nonprofit board members are white, with similar proportions found among the largest charities in the UK, as NPQ reported in 2018.
Writing this year for NPQ, Idalia Fernandez, Monisha Kapila, and Angela Romans recognized the work our sector faces: “Boards should demonstrate their commitment by doing their own racial justice work, including examining their own racial composition, diversifying as needed, and investing in board learning plans on implicit bias and racial equity.”
Maria Contreras-Sweet, administrator of the US Small Business Administration from 2014 to 2017, sees “people are having hard conversations” in boardrooms. “It’s a journey; it’s not like you turn on a switch and all of a sudden people are enlightened.”
Even when the this disconnect has been identified, change has come painfully slowly. Linda Akutagawa, the CEO of LEAP, a nonprofit that aims to cultivate Asian and Pacific Islander leadership, captured this reality in comments to CalMatters: “But despite the kind of change that we’re going through right now, I don’t think this is going to change as quickly as maybe advocates and activists want to see.”
Boards of foundations and nonprofit organizations remain heavily white, even in locations with large BIPOC populations, and those with power and prestige are loath to give either up. Even if, as Anastasia Reesa Tomkin wrote on Medium, some are “gracious enough to say that the problem exists…they will never go further than that — words, quotes, statistics, empty pledges of allegiance to the cause. They will never actually fight the problem in radical, effective ways.”
Does our sector require the kind of intervention many in the California legislature feel is required in corporate boardrooms? If we won’t act quickly and decisively, we may deserve the fate of being forced change our ways under penalty of fines and loss of our charter to act in the public’s interest.—Martin Levine
