The board nominating committee should consider the broader governance implications of the controversial new California law mandating certain levels of board gender diversity.
As is generally recognized, the law is limited in terms of its mandate, both as to the number of women required to be on the boards, and the fact that it applies only to publicly held corporations whose principal executive offices are located in California. Governor Jerry Brown also has acknowledged the potential flaws in the legislation and how they may ultimately “prove fatal to its implementation.” But the law’s controversial nature, and its limited application, should not prevent the nominating committee from discussing of the broader policy (and political) issues it presents.
The inclusion of diversity across all elements—gender, race, age, experience—within governance remains an important “best practice” for both the full board and its nominating committee. Regardless of whether the California law is sustained, this emphasis won’t be changing any time soon. The nominating committee should be particularly focused on a thorough process for accommodating diversity principles and concepts within its director recruitment, nomination and retention efforts. The new California law notwithstanding, this process should not be limited to gender diversity.
Indeed, the new law demonstrates both the willingness of legislatures to directly intervene in aspects of corporate governance that have traditionally been limited to the courts, and the likelihood that governance will become a political issue in future election campaigns at the state and federal levels.