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California’s women-on-boards quota worked — well, mostly

Despite the new law, 27 public companies still had all-male boards at the end of 2019.

People in a conference room

California firms have added 138 women to their boards — but 27 still have none.

Photo: FangXiaNuo via Getty Images

Silicon Valley benefits administrator WageWorks announced on April 9, 2019, that Carol Goode, a 35-year HR veteran, would join its all-male board of directors. Two days later, TiVo added tech finance executive Laura Durr and IP specialist Loria Yeadon to its board. Others followed with female board additions: gunshot-tracking company Shotspotter in late April, insurance software provider Guidewire in September and biopharmaceutical company Nektar Therapeutics in December, among others.

All told, 126 California public companies added 138 women to their previously all-male boards last year, ahead of a Dec. 31 deadline for a new law requiring companies headquartered in the state to have at least one woman director, according to an analysis released this week by KPMG. Companies who don't comply face a $100,000 fine for the first offense and $300,000 for further offenses. While there are some two dozen holdouts in California that haven't yet changed their board lineup, those who work on board diversity say that researchers, investors and policymakers in other states could soon force the issue at greater scale.

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"The legislation has clearly been a game-changer, not only in California, but in other states as well," said Shannon Gordon, CEO of theBoardlist, a board member matchmaking service. "What we're seeing right now is just a tipping point, frankly, of all these pressure points."

While research has accumulated on how diverse boards make better decisions, big-name investors like BlackRock and Goldman Sachs are moving from platitudes to more-concrete requirements. Starting July 1 in the U.S. and Europe, Goldman Sachs will no longer take a company public unless it has "at least one diverse board candidate, with a focus on women," CEO David Solomon told CNBC at this year's meeting of the World Economic Forum in Davos. The wording is less than precise, but Solomon said the push is driven by financial performance.

"Look, we might miss some business," Solomon said, "but in the long run, this, I think, is the best advice for companies that want to drive premium returns for their shareholders over time."

Then-Gov. Jerry Brown signed the California law, Senate Bill 826, in July 2018, requiring public companies to add at least one female board director (based on that person's self-identified gender) by the end of 2019. Larger boards must have up to three women by the end of 2021.

Some California companies, however, don't appear to be in a rush to comply: 27 companies had all-male boards at the end of 2019, KPMG found, representing about 4% of public companies headquartered in California. That's compared with the 29% that had all-male boards when SB 826 became law in mid-2018.

KPMG did not name the companies, citing neutrality rules for accounting firms, but the California secretary of state is expected to release its own report on board diversity next month. In the meantime, websites for companies including San Jose's A10 Networks and Fremont-based Enphase Energy still list all-male boards. Neither company responded to questions about their board lineups.

The KPMG report found that the health, pharmaceutical and biotech sectors are notable laggards, accounting for 37% of the companies that did not appear to have complied.

"Smaller companies tend to have smaller boards, and smaller boards have fewer women," said Annalisa Barrett, senior adviser to KPMG's Board Leadership Center, which authored the report. Scientific companies tend to have more industry-specific investors who may place less emphasis on diversity, Barrett said.

Carolyn Broughman, who heads the Boardroom Ready program at biotech industry group Women In Bio, said California's move to "the stick instead of the carrot approach" was a logical next step. The industry has been roiled by scandals in recent years, including a trade show party featuring scantily clad models, as well as other #MeToo horror stories, but lagged in adding female board members and executives.

"Of course everybody wishes this would happen organically," Broughman said. "It hasn't happened for 50 years."

At the Silicon Valley office of law firm Fenwick & West, partner David Bell has told clients not to wait around: "'You should plan on complying with this law,'" he said. That's in large part, Bell said, because of the blowback that could face a company sued over gender inequality.

"There is no board out there that wants to be the first defendant in this case," said Bell, who co-authors the firm's annual gender diversity survey. "There's lots of reasons why these laws may be subject to challenges, but nobody's going to challenge them."

Among the potential legal complications are the fate of companies headquartered in California but registered in Delaware, and the results of constitutional challenges that are regularly fought over other forms of affirmative action.

Unlikely to succeed, Bell said, are two lawsuits that have been filed against the state over SB 826 by tangentially related groups: a shareholder in a California company who lives in Illinois and a conservative activist group based in Washington, D.C. In the case of OSI Systems shareholder Creighton Meland, the industrial electronics company added a female board member in December even as the case winds through the court system.

Among companies that have gone on a board-recruiting binge after the new California law, Barrett found that 94% of women joined as outside directors, allaying concerns that boards would lose independence if companies hire from within their own ranks. The KPMG report also found that nearly half of new female board members currently hold a C-suite position, though companies are broadening their search to consider attorneys, investors, academics and others.

Though anecdotes abound about high-profile female executives being inundated with board offers as companies scramble to follow the law, Barrett found that "overboarding" concerns have been largely overblown, since 88% of new female directors serve on either one or two boards.

"This was one of the concerns that was continually cited as maybe an unintended consequence of the law," Barrett said. "To the extent that there weren't enough quote-unquote qualified women — which we knew wouldn't be true — would the same women be tapped?"

Many companies who are adding women, including bigger-name tech companies like TiVo, are opting to expand the size of their boards and create new seats for female members. Those who substitute a woman in place of a man often do so at a strategic time, like when an increasingly common board retirement age kicks in.

Europe has long led the way on gender diversity quotas, but a list of other U.S. states — some blue like California, others not — have passed their own rules for increased board disclosure, including New Jersey, New York, Maryland, Colorado, Ohio and Pennsylvania. Still, most states are steering toward corporate guidance policies, rather than requirements, said Gordon of theBoardlist. She's equally intrigued, she said, by ripple effects that happen in the wild.

"There's this halo effect there, where we're seeing increased activity within private companies," Gordon said. "My read of that is that this conversation is happening on a national level."

Politics

'Woke tech' and 'the new slave power': Conservatives gather for Vegas summit

An agenda for the event, hosted by the Claremont Institute, listed speakers including U.S. CTO Michael Kratsios and Texas Attorney General Ken Paxton.

The so-called "Digital Statecraft Summit" was organized by the Claremont Institute. The speakers include U.S. CTO Michael Kratsios and Texas Attorney General Ken Paxton, as well as a who's-who of far-right provocateurs.

Photo: David Vives/Unsplash

Conservative investors, political operatives, right-wing writers and Trump administration officials are quietly meeting in Las Vegas this weekend to discuss topics including China, "woke tech" and "the new slave power," according to four people who were invited to attend or speak at the event as well as a copy of the agenda obtained by Protocol.

The so-called "Digital Statecraft Summit" was organized by the Claremont Institute, a conservative think tank that says its mission is to "restore the principles of the American Founding to their rightful, preeminent authority in our national life." A list of speakers for the event includes a combination of past and current government officials as well as a who's who of far-right provocateurs. One speaker, conservative legal scholar John Eastman, rallied the president's supporters at a White House event before the Capitol Hill riot earlier this month. Some others have been associated with racist ideologies.

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Emily Birnbaum

Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.

People

Inside tech’s efforts to invest in Black banks

Tech companies are facing escalating calls to go beyond deposits.

Yelp is the latest company to announce it will be depositing $10 million across three Black-owned banks, including Carver in New York.

Photo: Mark Kauzlarich/Getty Images

Aaron Mitchell, the director of HR for Netflix Animation Studio, had already been working for months on a proposal to address the racial wealth gap when the killing of George Floyd rocked the country in May. Suddenly, it seemed like every company was coming out of the woodwork with pledges to invest and diversify and do better.

On May 27, Mitchell sent an email to Netflix CEO Reed Hastings asking him what he thought of a plan to invest $100 million in Black banks, a unique strategy to funnel more capital back into Black communities struggling amid the COVID-19 pandemic. At that point, no other corporation had made a similar public commitment. Mitchell said the $100 million was an arbitrary amount of money with symbolic significance: It was the same amount that Netflix spent on "House of Cards," a flashpoint in the company's history.

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Emily Birnbaum

Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.

People

Atlanta is the future for Black leaders in tech

"It takes so long for successes to emerge, and now we have a lot of results to point to."

Jewel Burks Solomon left Google for Atlanta; now, she's back with Google, helping Black startups.

Photo: Google for Startups

For more than a decade, Atlanta's leaders have liked to call the region "the tech capital of the South." This year, the tech industry is starting to see it the same way. VCs and companies like Google and Microsoft have recently made serious commitments to invest in the region, publicly acknowledging that the country's "Black mecca" is also the place where the industry can begin to fulfill its promises to create a more diverse, inclusive and innovative future.

It started in 2008, an unlikely beginning for a city's success story. The financial crisis devastated Atlanta just like every metropolitan area, but the disaster also laid bare untapped potential: Atlanta had the busiest airport in America; more Black college graduates than anywhere else in the country; practically limitless cheap land; the headquarters of Coca-Cola, Home Depot, UPS and a big chunk of Fortune 500 companies; friendly corporate tax and union policies; and the largest numerical population gains of any American city over the previous seven years. And so, when the country's richest and brightest turned their eyes to tech during the recovery from 2008, Atlanta's did the same.

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Anna Kramer

Anna Kramer is a reporter at Protocol (@ anna_c_kramer), where she helps write and produce Source Code, Protocol's daily newsletter. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Protocol | Enterprise

The man who brings the human touch to Google Cloud

A self-taught technologist with a storyteller's voice, Kelsey Hightower defied the enterprise tech sector's notorious diversity problems to become one of the industry's leading figures. Now he wants everyone's voice to be heard.

Kelsey Hightower, principal engineer at Google Cloud, seen in his natural habitat: talking cloud computing with attendees at KubeCon 2019.

Image: CNCF at KubeCon

Peter Idah had met Kelsey Hightower before. But this time, he brought his son.

It was March 2016, and the Kubernetes jamboree, KubeCon, was coming to Idah's hometown of London for the first time. Hightower, the de facto spokesperson for Kubernetes just as it was emerging as a force in enterprise tech, was speaking at the event.

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Tom Krazit

Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.

People

McKinsey’s diversity lead: Companies should focus more on retaining women

"There are many jobs available in the technology market right now. Are you a culture and place to work that's attractive enough that women want to stay?"

"Underneath the four or five big names in tech, there's a whole sector of medium-sized software and enterprise and consumer companies, and companies that are pre-IPO that are continuing to do well. And that's super important," says McKinsey's Lareina Yee.

Photo: McKinsey and Protocol

There's no one better suited to talk about the importance of diversity and the fight to advance women inside tech companies than McKinsey's Lareina Yee. As the chief diversity officer and leader of the company's global technology hardware and services work, it's almost all she thinks about.

Yee also leads a research project called Women in the Workplace, which releases an annual report, in partnership with Sheryl Sandberg's Lean In and The Wall Street Journal, about the progress of female representation in corporate leadership and corporate careers. This year's report, released last month, revealed an astonishing statistic: that one in four women were considering downshifting their careers because of the coronavirus pandemic.

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Anna Kramer

Anna Kramer is a reporter at Protocol (@ anna_c_kramer), where she helps write and produce Source Code, Protocol's daily newsletter. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

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