An idea that must be stopped: Gender quotas for corporate boards

Does porcine male chauvinism exclude women from the highest ranks of American corporations? No one could have doubted it in the 1880s, or even the 1980s. But today, a rising tide of female business talent is transforming the nation's boardrooms.

Earlier this year, Bank of America Merrill Lynch reported that women now account for 22 percent of corporate directors at the companies of the Standard & Poor's 500, up from 14 percent just a decade ago. At 55 of those companies, one-third or more of all board members are women. And where the biggest corporate behemoths lead, smaller corporations are following. In the boardrooms of the Fortune 1000, one of every five directors is female. Among the companies in the Russell 3000 index, which represents 98 percent of the US public equity market, only 17 percent still have all-male boards.

Clearly this is not mere tokenism. Women are being named to corporate directorships at an accelerating pace. Betsy Atkins, an investor and entrepreneur who has served on the boards of Volvo, Wynn Resorts, and Home Depot, highlights data showing that 38 percent of incoming Fortune 500 directors last year were women. Her conclusion: "The marketplace is working." Partly in response to pressure for more gender diversity from influential asset-management funds like BlackRock and Vanguard, partly in response to the burgeoning ranks of superbly qualified women high in corporate life, boards of directors are growing less male by the week.

Which is why a proposed California law mandating gender quotas for corporate boards of directors is such a bad idea.

Under a bill passed last month by the state legislature and now awaiting Governor Jerry Brown's signature, any publicly held company with executive offices in California would be required to have at least one woman on its board of directors by the end of next year. By the end of 2021, that requirement would grow to three female directors for corporations with six or more board members. A company failing to meet its quota could be fined $100,000 for a first violation, and $300,000 for any subsequent lapse.

The bill's opening section declares that increasing the number of women on corporate boards "will boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees." But in a heated speech as the measure was being debated, its principal sponsor suggested that it might be motivated at least as much by feminist grievance as by economics.

"We are not going to ask anymore," declared state Sen. Hannah-Beth Jackson. "We are tired of being nice. We are tired of being polite. . . . It's time that we burst that man cave."

Such histrionics may be useful politically. But they can't fix the flaws in Jackson's deeply misguided bill.

For starters, quotas are belittling. In a famous book about affirmative action, legal scholar Stephen Carter described from first-hand experience the sting of what he called the "best black" syndrome — routinely being regarded not as the most qualified candidate for a position, but only as the most qualified black candidate.

A law mandating a minimum number of slots for women on corporate boards will send the unfair and untrue message that women can't reach the pinnacle of corporate governance on their own merits. Lucy Dunn, the president and CEO of the Orange County (Cal.) Business Council, condemned the bill as "insulting," and predicted that instead of advancing more women to positions of corporate leadership, it would wind up "relegat[ing] them to placeholder status."

Not only is the bill unnecessary, it is likely illegal. Federal courts have already struck down rules requiring private entities to adopt racial and gender quotas as a violation of the Constitution's equal-protection clause. Moreover, the conduct of a corporation's internal affairs (such as the composition of its board) is controlled by the law of the state where it is incorporated. For many California companies, that state is Delaware — and nothing in Delaware law countenances a gender-diversity mandate.

There is a plausible case to be made that corporations perform better when their boards include women. But the fact that something is good or desirable doesn't mean it should be compulsory. Government in America is supposed to be limited, not all-powerful. The California bill is a classic example of legislative excess, an intrusion by the state into an arena where it doesn't belong.

And where does the intrusion end? If California can tell companies how many women belong in the boardroom, why can't it set quotas for blacks, Asians, and Native Americans, too? Why can't it mandate that a certain number of directors must be gay, or military veterans, or immigrants, or disabled? If it can impose a diversity mandate on the leadership of publicly-held corporations, why not on those who run nonprofits and labor unions?

California's bad bill is sure to cause more problems than it solves. American women are climbing the corporate ladder at an unprecedented rate, and doing so without the help of overreaching state legislators. The business world is indisputably hungry for the drive, aptitude, and skill of female leaders. It doesn't need quotas to sharpen its appetite.

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