Apr 5, 2022 - Economy

Board diversity efforts hit roadblock

Illustration of a conference table surrounded by white chairs and one black chair

Illustration: Sarah Grillo/Axios

The push to get more women and minority members into the ranks of the corporate elite, which has accelerated in recent years, hit a stumbling block on Friday when a judge in California knocked down one of the state's landmark board diversity laws.

Why it matters: The ruling could slow — but not completely stall — progress in getting more women and minority members into boardrooms around the country, observers told Axios.

  • "This is a setback that will come at the cost of better board governance," said Stefanie K. Johnson, a professor at the University of Colorado Business school who studies board diversity.

But, but, but: Guidelines from Nasdaq around board diversity — which sets targets around gender and racial diversity and require disclosures — still mean many U.S. companies have to pay attention to board composition. These guidelines aren't as strict as the California law, which imposed financial penalties on companies.

What's happening: Judge Terry Green in Los Angeles ruled that a 2020 law requiring public companies based in California have at least one board member from an underrepresented community — including racial and ethnic groups, as well as those who identify as LGBTQ — violated the California constitution.

  • A similar law passed in 2018, requiring women on boards, is also being challenged.

Between the lines: Advocates and activist shareholders were pressuring companies on board diversity years before these laws were passed — with limited success.

  • The California policies helped changed the game, moving the needle in increasing the ranks of nonwhite directors in Corporate America.
  • There was a 40% increase in the number of Black directors sitting on boards in the Russel 3000 from 2019 to 2021, according to data cited recently in the New York Times.
  • Still, about 80% of board directors are white.

The bottom line: "I feel like we are in a 'two steps forward, one step back' mode ... where there are a lot of people who feel threatened by the benefits that greater diversity can achieve," said Johnson.

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