The push to bring more women and minorities into the ranks of the corporate elite, which has gathered pace in recent years, hit a stumbling block on Friday when a California judge overturned the one of the state’s signature laws on board diversity.
Why is it important: The decision could slow – but not completely block – progress in bringing more women and minority members into boardrooms across the country, observers told Axios.
- “It’s a setback that will come at the expense of better board governance,” said Stefanie K. Johnson, a professor at the University of Colorado School of Business who studies board diversity. ‘administration.
But, but, but: Nasdaq Board Diversity Guidelines – which define targets around gender and racial diversity and require disclosures – this still means that many American companies need to pay attention to the composition of the board of directors. These guidelines are not as strict as California law, which imposed financial penalties on companies.
What is happening: Los Angeles Judge Terry Green has ruled that a 2020 law requiring California-based public companies to have at least one board member from an underrepresented community — including racial and ethnic groups, as well than those who identify as LGBTQ – violated the California constitution.
- A similar law passed in 2018 requiring women on corporate boards is also contested.
Between the lines: Advocates and shareholder activists were pressuring companies to embrace board diversity years before these laws were passed, with limited success.
- California policies have helped turn the tide, moving the needle in increasing the number of nonwhite directors in Corporate America.
- There has been a 40% increase in the number of black directors serving on Russel 3000 boards from 2019 to 2021, according to data cited recently in New York Times.
- Still, about 80% of board directors are white.
The bottom line: “I feel like we’re in a ‘two steps forward, one step back’ mode…where a lot of people feel threatened by the benefits that greater diversity can bring,” Johnson said. .