Aug 29, 2020 7:00 AM

California Lawmakers Push for More Diversity in the Boardroom

If it succeeds, AB979 would require Facebook, Netflix, Nvidia, Salesforce, and others to add directors of color.

women standing against colored background

Silicon Valley’s diversity initiatives have produced only middling results. The share of Facebook employees who are Black or Latinx, for example, has inched up to 10 percent, from 6 percent in 2014. Black Facebook employees say they still endure discrimination at work. Google’s numbers are similar: 10 percent in 2020, up from 5 percent in 2014, amid recent reports of unfair treatment from nonwhite employees.

A bill under consideration in the California legislature aims to tackle the problem from the top down. Assembly Bill 979 would require the more than 600 publicly traded companies headquartered in California to include people of color on their boards of directors by 2023 or face fines of up to $300,000 annually.

This is California’s second attempt at legislating boardroom diversity. A 2018 law requires publicly traded companies to have at least one woman on their boards. Before the law’s passage, nearly one-third of publicly traded California companies had all-male boards. Since the law took effect, women have accounted for nearly 45 percent of new board hires, according to Bloomberg.

The new bill’s backers hope it will compel a similar shift in board recruitment for people of color. AB979’s authors tell WIRED the country's long summer of reckoning with race lends urgency to diversity initiatives, but tackling them through legislation is still complicated.

“Those at the top of the corporate pyramid are the ones making critical decisions on who gets hired, where resources are allocated, and who gets to move up in society,” says State Assemblymember David Chiu, one of the bill’s authors. “And so it's critical that corporate leadership reflects the diversity of our state and our country.”

AB979 would require companies to have one or more people of color on their boards, depending on the board’s size. Companies with a board of at least nine members must have at least three nonwhite members. A few big tech companies today fall short of that, including Salesforce, Netflix, Nvidia, and Facebook. Each will have to add at least one person from an underrepresented minority by 2023 to comply with the bill, should it become law. None of those companies responded to a request for comment.

The bill is among hundreds awaiting final action by the California legislature, which adjourns on Monday. It faces little organized opposition, but sponsors say they’re unsure if it will make it through the pack for a final vote. Supporters include the Silicon Valley Leadership Group, which represents more than 350 companies, including most big names in tech. “The business imperative around authentic change as it relates to diversity is more clear than it ever has been,” says Ahmad Thomas, the group’s CEO.

AB979 is a robust approach to a long-standing problem but raises a complicated question: Who counts as an underrepresented minority? The bill defines the category as someone who “self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native.” Gay, lesbian, bisexual, or transgender employees also qualify as underrepresented.

But those categories may not fit neatly with how people identify. Uber, for example, has two directors from outside the US, neither of whom fit any of the bill’s categories: CEO Dara Khosrowshahi, who was born in Iran, and Yasir Al-Rumayyan of Saudi Arabia. Prospective board members who “look” white may nonetheless have nonwhite or mixed race parents. Combating discrimination means engaging with race, but judging someone’s status as “underrepresented” based on race, or worse, phenotype, is unsettling.

Assemblymember Chris Holden, another sponsor of the bill, acknowledges the complexity but says the bill is the first step in a longer, iterative process. “I think the bill is really looking for those who would self identify and describe themselves to fit one of these categories,” he says. “Progress sometimes just takes one step at a time. And that's what this bill is designed to do. It's not perfect.”

The bill would require companies to submit annual reports on board composition. Holden says the plan is to compile this data and potentially adjust the law over time. This includes adding nuance to the definition of “underrepresented.” For now, however, he hopes the bill supplements the changes from the 2018 law.

While it’s important to build a coalition, the authors recognize that different groups face different barriers. Black and Latinx workers, for example, face historically low recruitment numbers that haven’t budged much over the years. This is very different from Asians, who are well represented at technical levels in Silicon Valley but face different issues in corporate advancement.

At Google, for example 42 percent of the US workforce is Asian, but only 30 percent of people in leadership roles. Facebook’s workforce is roughly 44 percent Asian, but its leadership is only 25 percent. In 2005, consultant Jane Hyun coined the term “bamboo ceiling” to describe the paradox faced by many Asian workers kept from leadership roles.

“Each of our communities are challenged in different ways when it comes to corporate advancement,” says Chiu, who is chair of the legislature’s Asian & Pacific Islander caucus. “Part of what we wanted to do with this bill was to help level the playing field with policies that are broad enough so that every community could benefit.” He says the so-called “model minority” stereotype that Asians perform well, often “masks the challenges that our communities are facing.”

Some businesses may be wary of the resources needed to change board demographics. A 2018 study from researchers at the University of North Carolina at Chapel Hill found that the value of California firms suffered, compared with similar firms headquartered elsewhere, after the bill requiring women on boards became law. Companies that had to add the most women to their boards suffered the most. The authors theorized that the companies that needed to add more women had to spend more money to do so, hurting returns.

That’s the short-term view. In the long term, the authors considered the changes “ultimately may lead to improved outcomes” for the firms. If companies are struggling to find qualified talent, the problem doesn’t rest solely with prospective hires.

“I am not going to sit back and allow companies to make an excuse that the talent is not there,” says Thomas, the Silicon Valley Leadership Group CEO. “We want to open up an entire new set of opportunities to people who have been excluded from many of the conversations that they deserve to be a part of.”

Companies have often pointed to a “pipeline problem,” referring to a small talent pool of qualified individuals who have difficulty finding their way to companies. Holden and Thomas proposed a different framing: that companies have myopic networks that aren't designed to bring in new talent.

“You go to the same headhunter, the headhunter goes out and finds the same people they normally look for,” Holden says. “By having this law, maybe companies need to find some diversity in hiring their headhunters.”