A California judge on Friday struck down the nation’s first law requiring corporate board diversity, a measure that many workplace diversity experts had hailed as transformative and necessary.
“Change appears to be happening, but at a glacial pace,” said Colleen Ammerman, director of the Harvard Business School’s gender initiative in Cambridge, Massachusetts. “Most board seats are still filled through networks, whether at private or public companies, and current directors’ networks tend to be filled with people who look like them.”
A member of certain racial, ethnic, or LGBTQ groups was required to serve on corporate boards under a California law passed in 2020.
Conservatives have long claimed that policies that include underrepresented groups based on gender, race, sexuality, or creed are discriminatory. Judicial Watch, a Washington, D.C.-based conservative activist group that files Freedom of Information Act lawsuits to investigate alleged government wrongdoing, had sought a permanent injunction against the measure, but the judge decided to overturn it.
Nonetheless, proponents of legislative directives as a means of increasing diversity claim that such measures work. California also passed a law requiring at least one woman to serve on corporate boards in 2018. Companies that did not follow the rules were fined.
The number of women on boards has doubled since the law went into effect, according to Jennifer Chatman, associate dean for academic affairs at the University of California, Berkeley’s Haas School of Business.
“Even if people are well-intentioned and express a desire to increase gender, race, and sexual orientation equity on boards,” Chatman said, “there’s no substitute for having a law that must be followed, with consequences for non-compliance.”
Governor Gavin Newsom hailed the bill as a critical step in protecting marginalized people when he signed it.
Boardrooms and executive suites are largely white, male, and straight, according to federal data, while employees of color are overrepresented in the country’s blue-collar workforce. According to analysts, companies should review their recruitment policies, form governance committees, and include members of underrepresented communities among venture capital investors. Who rises through the ranks to senior corporate roles, and which offer the highest salaries and benefits, are all shaped by board membership.
Lack of job opportunities widens the wealth gap, with the average white family owning eight times the wealth of a Black family and five times the wealth of a Latino family.
According to Lori Nishiura MacKenzie, lead strategist for diversity, equity, and inclusion at Stanford Graduate School of Business in California, “one of the biggest challenges is that companies often default to inviting a sitting or former CEO to join the board,” which can be a problem when C-suites are also very homogeneous.”
“Companies looking to diversify their boards should examine how candidates are recruited to the board and take an inclusive approach to defining board needs,” Nishiura MacKenzie said.
Others want companies to create roles or committees on the board of directors dedicated solely to diversity, equity, and inclusion initiatives.
“These topics are frequently subsumed under the board’s ‘governance’ committee, but it may be time to elevate these roles, as they are becoming increasingly critical for companies,” said Sarah Soule, professor of organizational behavior and senior associate dean of academic Affairs at Stanford Graduate School of Business.
The answer to how to diversify the top begins at the investor level, according to Erica Duignan Minnihan, general partner at Reign Ventures in New York.
“More inclusive investment firms will almost certainly have more diverse founding teams, who will hire more diverse management teams,” said Duignan Minnihan. “These are the people who decide on board composition, so we need to look at them to solve the problem.”
Some organizational psychologists, however, warn that businesses must focus not only on diversifying their boards, but also on managing, mentoring, promoting, incentivizing, and engaging a diverse workforce, as well as creating different onramps and pathways to success.