ANSWERING THE KENNEDYS CALL
California State Senator Hannah-Beth Jackson’s upcoming Senate Bill SB826 on reforming corporate governance will make corporations more responsive to the needs of the societies in which they operate by requiring more women to serve on their boards.
This is heady stuff, as research has shown that women on a corporate board are more likely to “create a sustainable future” by, among other things, instituting strong governance structures with a high level of transparency.
A 2012 UC Berkeley Hass School of Business study entitled, Women Create a Sustainable Future, to list just a few of the benefits of adding more women to corporate boards, are more likely to be:
· Companies that proactively invest in renewable power generation and related services.
· Companies that proactively address the environmental risks embedded in their financing decisions.
· Companies that provide strong employment benefits and performance incentives and offer employee engagement and professional development programs.
· Companies that offer products with an improved nutritional or healthier profile and have sought credible verification for its healthier status.
“Women and sustainability are two sides of the same coin …. Corporations build better societies if they have balanced boards,” said Halla Tomadottir, executive chair and co-founder of Audur Capital in Iceland, interviewed in the study. Ms. Tomadottir was on the all-female board of the only Icelandic bank that didn’t go into bankruptcy in 2008 during the Great Recession.
Perhaps her most famous quote, made in the Michael Moore documentary, Where to Invade Next? was “One woman on a board is a token, two women a minority. It takes three women to make a difference.” (sic)
“Take for example, a company like Nestlé,” says the Hass study, “which has recently turned its focus toward creating shared value with its product offerings in three areas: nutrition, water, and rural development. Nestlé uses science-based solutions to improve the quality of life through food and diet. “This type of social initiative is well aligned with corporate sustainability for Nestlé. Our research findings to date suggest that having more women corporate directors is correlated with these types of strategies and outcomes. Nestlé’s Board of Directors has three women.”
Senator Jackson’s bill, “no later than the close of the 2019 calendar year, would require a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California to have a minimum of one female, as defined, on its board of directors, as specified. No later than the close of the 2021 calendar year, the bill would increase that required minimum number to 2 female directors if the corporation has 5 directors or to 3 female directors if the corporation has 6 or more directors.”
The behavior of corporations and corporate boards has come under scrutiny particularly since the December 2017 massive corporate tax cuts that its supporters touted would repatriate some of the $3 trillion in overseas assets, as well as raise the incomes of its employees.
But that hasn’t happened to date, as the focus of corporations’ increased profits since then have been to return the windfall to investors and corporate CEOs—either by buying back more shares, going private, or indulging in Wall Street’s merger and acquisitions’ game, rather than creating sustainable programs that would profit society at large as well as themselves.
In a 1970 Times magazine article, the free market economist Milton Friedman argued that businesses’ sole purpose is to generate profit for shareholders. Moreover, he maintained, companies that did adopt “responsible” attitudes would be faced with more binding constraints than companies that did not, rendering them less competitive.
“There is one and only one social responsibility of business — to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” -Milton Friedman, New York Times Magazine, September 1970.
How the world has changed since then! We now know that ignoring environmental and social issues can be bad for business. Companies that pollute their local communities risk poisoning their customers. Ignoring the state of the local school system can mean depleting the pool of qualified workers. Exploiting workers risks higher turnover and training costs, not to mention greater difficultly in attracting the most qualified candidates.
As part of its findings, SB826 provides some impressive supportive data about the benefits of board gender diversity, including the following:
“(1) A 2017 study by MSCI found that United States’ companies that began the five-year period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period.
(2) In 2014, Credit Suisse found that companies with at least one woman on the board had an average return on equity (ROE) of 12.2 percent, compared to 10.1 percent for companies with no female directors. Additionally, the price-to-book value of these firms was greater for those with women on their boards: 2.4 times the value in comparison to 1.8 times the value for zero-women boards.
(3) Credit Suisse conducted a six-year global research study from 2006 to 2012, with more than 2,000 companies worldwide, showing that women on boards improve business performance for key metrics, including stock performance. For companies with a market capitalization of more than $10 billion, those with women directors on boards outperformed shares of comparable businesses with all-male boards by 26 percent.”
The business world can no longer afford to ignore what it takes to create a sustainable future, a future in which our children can enjoy the fruits of our labor. How can we otherwise enjoy a world growing more populous with limited resources and a warming planet?
Harlan Green © 2018
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