New California law mandates more women on corporate boards. What does it mean for San Diego companies?
Debra Reed served as board chairwoman and CEO of Sempra Energy, which has five women on its 14 member board.
By Mike Freeman
Just over a quarter of San Diego's largest publicly traded companies have all-male boards of directors. But that may change soon under a new law signed Sunday by California Gov. Jerry Brown.
The law requires publicly traded corporations headquartered in California to include at least one woman on their boards of directors by the end of 2019.
The goal of the law is to close the gender gap in the corporate world, but it could face legal challenges. Brown acknowledged potential legal flaws in a signing ceremony over the weekend.
In San Diego, 13 of the 46 local companies listed on the Russell 3000 index have all-male boards as of June 30, said Annalisa Barrett, a lecturer at the University of San Diego who studies corporate governance.
That's an improvement from 2017 – when 20 of 48 San Diego Russell 3000 companies had no women on their boards.
The progress is a bit misleading, said Barrett, who is also chief executive and founder of Board Governance Research LLC.
While a few local companies added women to their all-male boards last year – including Viasat, Bridgepoint Education and Pico Holdings – the improvement stems largely from changes in the mix of local companies on the Russell 3000 – an index of the largest publicly traded companies in the U.S. based on market capitalization.
"San Diego is home to many publicly traded companies that are too small to be included in the Russell 3,000 index," said Barrett. "There are many microcap companies in San Diego that do not have women on their boards."
Many of San Diego's largest companies – Qualcomm, Realty Income, ResMed, Cubic Corp. – have at least one woman as a director now. A handful of San Diego companies have three women directors, including Jack-in-the-Box and Illumina.
Sempra Energy has the largest number of female directors locally, with five women on its 14-person board.
Diversity and independence on corporate boards is being driven in part by large institutional shareholders, particularly for Russell 3000 companies.
"They are pressuring companies that they invest in to make changes in governance practices, and companies in the larger market cap ranges are responding to those requests by their investors," said Barrett.
Local Russell 3000 companies with all-male boards include American Assets, a real estate investment trust; broadband chipmaker MaxLinear; and Bank of the Internet parent Axos Financial, among others.
Axos, America Assets and MaxLinear did not respond to requests for comment.
By July 2021, the new law calls for at least two women to sit on boards with five members, and three women must be on boards with six or more members.
Companies that miss the targets face fines of $100,000 for a first violation and $300,000 for subsequent violation. The California Chamber of Commerce and about 30 business groups opposed the law.
Public companies typically want a variety of skills on their boards, said Christina de Vaca, chief executive of the Corporate Directors Forum in San Diego, a non-profit that works to educate and support board members.
But increasingly, they want different viewpoints as well, said de Vaca.
"The ability to have a variety of perspectives when you are making decisions is so important," she said. "It is not just the skill sets. It is the varying perspectives that really enriches the dialog."
The lack of women on corporate boards, she said, stems in part from a lack of women in top executive positions at companies. Once that changes, there will be a bigger pool of women candidates to choose from for board seats.
A quarter of California's publicly traded companies do not have a woman on their boards, according to Hannah-Beth Jackson, D-Santa Barbara, who introduced the legislation with Senate President Pro Tem Toni Atkins, D-San Diego.
That percentage is on par with San Diego's ratio for larger public companies. Because the region – as well as the state – has an abundance of smaller, microcap firms, the overall percentage is likely higher, said Barrett, the University of San Diego lecturer.
Biotechnology, a key industry in the region, also is a field where companies tend to want a specific, narrow skill set that sometimes leads to all-male boards, she said. Half of the 25 largest San Diego biotech companies do not have women directors.
"From my experience of 20 years looking at boards, the biotech industry is much more likely to have a concentration of directors who are all from the biotech or science field as opposed to other industries," she said.
Three local biotech firms, however, have two or three women directors – Halozyme Therapeutics, Arena Pharmaceuticals and Obalon Therapeutics.
In addition, biotech industry organizations and trade groups are working to support women in the field, said Ken Wechsler, an associate partner with compensation consulting firm Radford Aon.
"You need to make sure it is the right person for the board, and in certain industries, there are going to be more men," he said. "But with the push to get more women in biotech, that is going to change. It just won't happen overnight."
mike.freeman@sduniontribune.com;
Twitter:@TechDiego
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