California has been leading the charge on board diversity legislation for several years, with the recent passing of AB-979 marking another significant step on the journey to bridge the tremendous equity deficit at the highest levels of corporate America.
However, legislation means nothing without action. Action, not only to fill board seats with extraordinary minority and women leaders, but even more importantly, action to address the systemic reasons and complex factors that have contributed to the equity and access deficit facing women and people of color for so long.
Lightspeed Venture Partners and Rich Talent Group are committed to supporting companies to build diverse leadership teams and taking action to foster a more inclusive and equitable business world.
A look back
Two years ago, California made history as the first state to pass a law, SB-826, requiring that publicly-traded companies have at least one woman on their board.
At the time, women comprised only 17% of board members in California, and yet women in the U.S. make up more of the workforce than men and hold more college and graduate degrees. The lack of representation on boards was (and still is, frankly) unacceptable, and progress wasn’t happening fast enough on its own. While a law like this is not a panacea by any means, it’s a small but mighty step toward gender parity.
Now, as the nation begins to come to terms with months of social unrest around racial injustice and inequality, we find ourselves on the brink of another wave of change.
Today
AB-979, the new law, signed by Governor Gavin Newsom on September 30, 2020, mandates publicly-traded companies headquartered in California to have at least one director from an under-represented community by the end of 2021.
By the end of 2022, boards with more than four members must include at least two members from under-represented communities, and boards with nine or more directors will be required to have at least three.
The law defines under-represented communities as individuals who identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who identify as gay, lesbian, bisexual or transgender.
“While some corporations were already leading the way to combat implicit bias, now all of California’s corporate boards will better reflect the diversity of our state…This is a win-win, as ethnically diverse boards have shown to outperform those that lack diversity.” — Assemblyman Chris Holden (D-Pasadena), co-author of AB-979
While this law, like SB-826, has proven controversial among some, the data speaks for itself:
- 80.7% of new board seats in the Fortune 500 were filled by Caucasian/White directors between 2016–2018.
- Minority men comprised 13% of new directors in the S&P 500 in 2019, which was up from 10% the year before, but down from 14% in 2017.
- Women held 22.5% of board seats in the Fortune 500 in 2018, while minority women had less than 5%.
- 37% of S&P 500 companies did not have a single Black board member in 2019.
- Only 10% of board seats in the Russell 3000 were held by non-white directors in 2019 (Black directors: 4.1%, Asian: 2.9%, Hispanic/Latin American: 1.8%, Other/Indian/Native American/Middle Eastern: 1.6%).
Why haven’t more companies diversified their boards?
Here are just a few of the reasons they commonly fall short (Hint: It is NOT a “pipeline problem”):
- Board opportunities often come from existing board members’ networks. Drawing on the inner circles of a board that’s not diverse only preserves the status quo.
- Boards have prioritized “proven CEOs” for director roles, while knowing that private and public company CEOs are disproportionately white men. We can’t invent another type of math. Diversity will never be the solution of this equation.
- “The Trade Off Dilemma.” Considering a non-proven or “board ready” CEO for a board role is often considered a “trade off” and “lowering the bar.” We must change this perception. Building for diversity is not a trade off, it is a trade up.
Tomorrow
With the momentum of California’s new law, it’s safe to say we’re going to see some change over the coming months. In the year after the women-on-boards legislation passed, the number of women board members in California increased to 23% in Q4 2019 from 17% in Q3 2018. And California moved to 16th in state ranking for women’s representation on boards, up from 29th.
We know there is not a pipeline problem. There is an abundance of talent from underrepresented communities who are ready, or near ready to serve on boards. This is why Lightspeed Venture Partners and Rich Talent Group are so motivated to team up around this movement. In fact, we have already seen a 70% increase in board opportunities across both firms since this time last year — and nearly 100% of the people RTG has recruited to those roles have been women and people of color.
Join Us
Earlier this year, our teams launched a series, Building Tomorrow’s Boardroom, Today, to support more women and people of color in preparing for and building the connections necessary to join a board.
We’ll be kicking off the new year with our next event, bringing together seasoned board members who’ve succeeded in building diverse teams, and board-ready individuals planning to take their next step. Stay tuned for more, and if you’re interested in attending this event or other related events in the future, please reach out to events@lsvp.com.
- By Nicole North (Lightspeed Venture Partners) and Jana Rich (Rich Talent Group)
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