In summary

Most California public companies had at least one woman on their board by 2020, but two lawsuits are challenging the law.

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By Betty T. Yee, Special to CalMatters

Betty T. Yee is the California State Controller.

Change is easier for some than others. It’s true of California companies that have refused to add female directors to their boards, as required under SB 826, a 2018 law that requires all public companies headquartered in California to appoint women to their boards.

Although the KPMG Board Leadership Center found that 96% of all California public companies had at least one woman on their board by the end of 2019, a few holdouts have filed two lawsuits questioning the law’s constitutionality, citing “sex-based discrimination.” These suits were initially thrown out but three 9th U.S. Circuit Court of Appeals judges acted to reinstate them in June.

This decision is bad news for investors, including our state’s public pension funds.

According to research by McKinsey & Company, public companies in the top quartile for gender diversity were 25% more likely to outperform industry-median growth than bottom quartile companies. Credit Suisse Research Institute reports companies with women on their boards are more profitable, more productive and the workforce more engaged. A Morgan Stanley Capital International study found that over a five-year period, U.S. companies with three or more women directors reported earnings 45% higher per share than companies with no female directors.

For shareholders, these economic benefits have long led CalPERS, CalSTRS and other institutional investors to encourage public companies in which they invest to seek greater board diversity. In the fiscal year 2018-19, the pension funds contacted 85 California-headquartered companies that were part of the Russell 3000 to ask them to diversify their boards. During that year, approximately 67 women were appointed to boards. By the mid-2020, only five California companies that were contacted failed to appoint any women directors.

The embrace of board diversity is also happening nationally. In August, the Securities and Exchange Commission approved new Nasdaq listing rules that require a company listed on the exchange to have at least two diverse directors (at least one woman and one member of an underrepresented community) or the company will have to explain why it failed to do so. Companies will be required to disclose board diversity on an annual basis. The SEC also approved the implementation of a board recruiting service portal that will allow certain Nasdaq-listed companies to access a network of diverse candidates.

More work needs to be done. 

Adopted in 2018, SB 826 requires every publicly traded company with principal executive offices in California to have at least one woman on its board by the close of 2019, and a minimum of two or three women directors, depending upon board size, by the end of 2021. Prior to the law’s effective date, women occupied only 16% of California-based corporate board seats in the Russell 3000. Today, women now occupy 28% of board seats.

Progress has been made in addressing the deficit of women around the board table. However, nearly half of public companies subject to the law must act to add women to their boards by year end to comply – creating an opportunity for 563 women to fill these board seats. Adverse court rulings would not only have a chilling effect on California’s efforts but would also undermine the actions of other states that have introduced similar board diversity measures.

The federal lawsuit filed by an ultra-conservative activist group, Judicial Watch, is expected to be heard in district court in mid-October. A state lawsuit, filed by another conservative organization, Pacific Legal Foundation, is expected to be taken up in Los Angeles Superior Court this week. If successful, the lawsuits would allow the “good old boys club” to remain in place – regardless of the law’s clear economic benefits.

It’s not extreme for board members and CEOs to look outside their comfort zones and expand the boundaries of their networks to seek women candidates of all backgrounds and experience. Bottom line, California boasts hundreds of women leaders with successful business careers. They would bring value-added experience to corporate boards – if given the opportunity.


Betty Yee has also written about Proposition 15, which proposed a tax on commercial and industrial properties to fund education and local governments.

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