Opponents of the law question its efficacy, saying it’s like treating a symptom rather than the disease.
But because it’s human behavior that we’re trying to change in this case, treating the symptom can be a big first step towards treating the disease.
He suggests that the most effective way to bring change to the boardroom is for large, institutional investors—like the California Public Employees Retirement System (Cal PERS)—to exercise their capital markets influence and refuse to invest in companies that do not meet certain diversity, equity, or other standards.
Non-compliant firms will see their stock prices fall and executives and directors will earn less money.
So firms may appoint more women but at the expense of having fewer other underrepresented minorities or vice versa.
To best appreciate the benefits associated with governments mandating gender boardroom diversity, we must focus on the long-term.
That is, boards do not increase the number of diverse directors on the board, but rather increase the types of diversity on the board.
A board may go from having one female and two non-white directors, for example, to having two female and one non-white director.
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In June 2018, Black Rock Inc, one of the world’s largest institutional investors, supported a proposal to formally separate the roles of CEO and board chair at Tesla, to make shareholders less dependent on one single individual.
The company opposed the idea, and, despite Black Rock’s 6% ownership stake, the proposal was defeated, 84% to 16%.
Specifically, all companies in California will be required to have at least one woman on their board by 2019.
Boards with five or fewer directors will need two female directors by 2021 and larger boards will need three.