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Board gender diversity takes a big step forward in California, but more mandates loom

“We did more women on board searches in the last two years than we’ve done in 10 years collectively,” said Toft, founder and chairman of South San Francisco-based Toft Group Executive Search, a ZRG Company. “I placed 98% women into board roles over the past two years. Every company that comes to us wants two or three women.”

The past two years for Robin Toft have never been busier. And the life sciences executive recruiter couldn’t be happier about the reason why.

There has been a surge of companies restructuring their boards to include more women following the passage of a 2018 law requiring that public companies in California improve the gender makeup of their board of directors. That law nearly single handedly pushed the issue of board diversity to the forefront.

“We did more women on board searches in the last two years than we’ve done in 10 years collectively,” said Toft, founder and chairman of South San Francisco-based Toft Group Executive Search, a ZRG Company. “I placed 98% women into board roles over the past two years. Every company that comes to us wants two or three women.”

That trend isn’t likely to slow down anytime soon, as the requirements to diversify are set to ramp up again this year for public companies in California. SB 826, the law that’s been keeping Toft and other executive recruiters busy since its approval, first required at least one woman be added to public company boards by the end of 2019. For boards with five or more members, that requirement goes up to two or more female directors by the end of the year.

Boards also have more diversification to do in 2021 following the approval last September of AB 979, which requires every publicly held corporation in California have at least one director from an underrepresented community on its board by the end of this calendar year. That includes people who self-identify as Black, African-American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native or LGBT, according to the law.

With these new requirements slated to take effect, Toft is among the women in life sciences at the forefront of helping companies rethink their strategies for identifying board members.

In the past, board members — who were some 80% men — did not conduct a search to fill vacant board seats 70% of the time because they sourced from their networks.

With the passage of SB 826, that old strategy went out the window as many of those male board members failed to find many – if any – women in their Rolodexes.

Even among those who nominally understand why diversity is important, an outdated view of what counts as “board-worthy” experience often becomes a sticking point for taking action on diversifying a board.

Redefining ‘qualified’

Nicole North, executive talent partner at Menlo Park-based Lightspeed Venture Partners, finds herself telling business leaders that they “can’t manufacture women and people of color who have been veteran CEOs of biotech companies and have taken them public.”

That list of candidates is short for the same reasons there aren’t already more women and people of color on boards: Systemic sexist and racist barriers have historically kept them out of leadership roles.

“What a lot of companies, a lot of boards, and a lot of leaders are struggling with right now is figuring out what is the new framework and lens to evaluate independent board members in the first place,” North said. She is taking that on by helping leaders of portfolio companies, of which Lightspeed has more than 400, shift away from thinking that they are making a concession if they look for anything other than veteran CEOs for their board candidates.

A benefit of highly regulated industries like biotech and health care, North said, is that there is even more opportunity to think about different perspectives beyond those of veteran CEOs — like bringing on people who have experience as regulators and could improve diversity of thought and leadership on boards.

“We have to help these leaders change their mentality and perspective around what type of independent board members can really bring and drive value for the company and the board,” North said.

She’s also encouraging more business leaders to explore board candidates who work in related fields, pointing to health tech and medical research, for instance.

“More companies are thinking about bringing in expertise from outside their industry that can really help complement them,” North said.

Recent research shows that expanding the pool of board candidates isn’t diluting the level of talent, one of the potential affects cited by  those opposed to diversifying boards.

Kathleen Kahle, the Thomas C. Moses Professor of Finance in the Eller College of Management at the University of Arizona, has been working with several colleagues on closely tracking compliance with SB 826.

Their research includes a working paper that compares the skills and qualifications of men and women appointed to boards before and after the law. While women appointed as directors both before and after SB 826 are less likely to have CEO experience than their male counterparts, they are just as qualified in terms of C-suite experience, Kahle said.

To any assertions that the reason there aren’t more women on boards is because there aren’t enough qualified women, Kahle said, that research shows that “just doesn’t seem to be a problem.”

Pathway to parity

With the clock ticking to the end-of-year deadlines for adding more women and people from underrepresented groups to boards, organizations like the California Partners Project are continuing their efforts to understand and overcome hurdles business leaders say they face.

The group — co-founded by Jennifer Siebel Newsom, wife of Gov. Gavin Newsom, and Executive Director Olivia Morgan — focuses on promoting gender equity as one of its core causes.

The group’s October 2020 “Claim Your Seat” report examined the gender diversity of the 650 publicly traded companies based in California and traded on the NYSE or Nasdaq. It found that while nearly 30% of California company boards were all male in 2018, that number dropped to less than 3% at the time of the analysis. It’s now less than 1%, Morgan said.

But there’s still another large shift needed: Looking to the increased gender diversity requirements that boards must meet by the end of 2021, the report found 72% of companies would need another one or more women to join their boards to be compliant.

The California Partners Project is also working with Equilar and the Latino Corporate Directors Association to release a report this year assessing the impact of SB 826 on boards through a race an dethnicity lens.

The organization led a series of focus groups last fall with some 40 business leaders to talk about the most powerful, convincing arguments for having a diverse board of directors and to understand what the challenges are to diversifying.

What kept coming up was that the people — mostly men — who were already on boards weren’t sure how to get beyond their “first circle of trust” of the people they know and have worked with firsthand.

“That’s something we’d like to focus on and help folks acknowledge and help business leaders see, that as much as they are successful taking other risks in their corporate work — and that might be something they value — that reaching beyond your first circle of contacts to add a board director is a much smaller risk with a much greater reward than other business risks that they take,” Morgan said.

When she’s making that pitch, she reminds leaders that not accessing all the talent, vision and experience people have to offer is a huge opportunity to miss out on. She asks them: Would they leave other resources on the table? “You’re just leaving all of that value untapped,” she tells anyone who’s wary.

For those who have taken that perceived risk of looking outside of their circle, Morgan noted, she’s never heard of a case where it did not work out.

“The only anecdotes that we hear are folks who add a diverse perspective to their board — whether it’s a woman or a person of color to a board that previously didn’t have that — they realized it really is good to have a new perspective, a new skill set, a new voice at the table,” Morgan said.

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