California mandates gender board diversity

California has become the first state in the US to legislate gender board diversity for publicly listed companies.

From 1 January 2019 public companies headquartered in California must have at least one woman on the board of directors by year end or pay significant penalties. By 2021, companies with six or more directors must have a minimum of three females.

MSCI executive director and head of ESG Impact and screening research Meggin Thwing Eastman says the move is significant for global asset owners.

Other investors may follow the lead of Japan's Government Pension Investment Fund (GPIF) and CalPERS that have taken the lead in the area of gender board diversity, she said.

As of 27 November 2018, about 14% of the 364 California-headquartered constituents of the MSCI USA Investable Market Index recorded had all male boards.

Thwing Eastman said Silicon Valley potentially has the biggest hurdle in meeting the 2019 deadline as nearly half of companies with all-male boards were in the information technology sector.

"Tech may find itself scrambling to comply with the 2021 requirement, as well - more than 100 companies will need to add female directors to comply with the law."

This list includes some of the big players such as Facebook which currently has two of nine directors are women, while Apple has two female directors out of a total of nine, she said.

While the California law may force some faster progress in female representation on US corporate boards, she said it's unclear how much it may move the needle globally.

"Similar mandates have been implemented for publicly traded companies in 14 other countries ranging from Norway and France to India and Malaysia, with several additional jurisdictions having quotas for state-owned businesses."

"As of Oct. 16, 2018, mandatory quotas were under consideration in Canada, Brazil, South Africa and the EU. The data shows that mandates with teeth have been effective."

Read more: Gender board diversityAppleFacebookMSCIMeggin Thwing EastmanCalPERS
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