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Commissioner Peirce Has Concerns About California's Gender Quota Mandate

California's gender quota law has attracted a lot of attention, including from at least one member of the Securities and Exchange Commission.  At last month's annual conference of the Society for Corporate Governance, Commissioner Hester M. Peirce delivered the following :

"The text of the bill explicitly makes a business case to justify the law’s existence; it points to the financial benefits to firms of having women on their boards.  As I noted earlier, the mixed findings of research in this area may not support this business case.

These state efforts concern me because they micromanage an aspect of corporate governance that corporations, boards, and shareholders seem perfectly capable of handling on their own.  First, with respect to the California law, it seems odd that the legislature would need to act to require companies to take action that, in the language of the law itself, is of great benefit to the companies themselves.  Second, the decision of whom to place on a board is an intensely bespoke decision for a company.  Optimal board size differs by company, but adding another director is not always a good option. Each seat, and the specific qualifications of the director that fills it, must therefore be carefully considered by the company. What those qualifications are will turn on the needs of the company.  Depending on the company’s age, location, industry, target customers, and history, and the qualifications of other board members, any one company may need a director who has extensive experience with large public companies, or with a specific community, or deep expertise in the technical requirements of an industry, accounting expertise, or a background in marketing, and so forth. For one company, having women on the board may be essential.  Perhaps the company makes products used exclusively or chiefly by women, or perhaps the company has had pervasive problems with sexual harassment against women and needs female voices at the table.  In some cases a board composed solely of women will make sense. Upsetting the delicate balance is a serious incursion on private judgments."

"Baby on Board: Remarks before the Society for Corporate Governance National Conference" (June 28, 2019) (footnote omitted).

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