California recently passed a law requiring public firms headquartered in the state to include at least one woman on their boards by the end of 2019. The proposal has led to criticism that board quotas have unintended consequences. Others have claimed that a quota might be necessary to combat the glacial pace of voluntary change in boardrooms.
Our contribution is to bring hard data to pinpoint where regulators and commentators might want look to address gender disparity. In particular, we have gathered data on every board appointment and resignation filed with the SEC for all public companies with more than $75 million in market capitalization since April 1, 2018. The findings are eye-opening.
Between April 1 and September 24 2018, 228 women have been appointed to boards relative to 433 men. That data points to the well-known gender disparity in the board room. However, when we probed a little deeper, a different picture emerges. When we focus on companies with a market capitalization of $5 billion or more, interestingly, the male tilt goes the other way. That is, 57 women have been appointed to boards of such large companies relative to only 19 men. Hence, pressure from the media and large institutional investors appears to have largely worked in such companies at addressing the gender imbalance.
However, when we consider the board composition of firms just going public, things do not look all that good for gender balance. Only 51 women have been appointed to the boards of firms that went public relative to 455 men. That is, only around 10% of board members of firms that IPO’d since April 1, 2018 are women!
Why such a large imbalance? Venture capital is a notoriously male-dominated business. VCs usually invest their money in start-ups that go public and hence they end up serving on the boards too. Last year, just 2% of venture capital funding went to startups founded by women and women comprise just 9% of the decision-makers at U.S. venture capital firms. Given that a large fraction of firms going public are based in California, the “quota” if it were to become law, might create new opportunities for women directors especially when the VCs cash out and resign from the boards.
Our intention is not to support or oppose the quota in one way or the other in this piece. We want commentators and legislators to look at the evidence. Our data suggests the director market for very large corporations may converge to gender parity in the next few years even without legislation — provided pressure from media and institutional investors keeps up. VCs and start-ups deserve more focus, among institutional investors, proxy advisors and the media, as battle grounds for gender disparity in the board rooms.