POSITIVE NEGATIVE

From a corporate governance A recent study has shown that,

perspective, some of the most despite showing an almost universal

promising arguments in support of assent to the value of diversity in

diversity are those linking diversity abstracto, corporate directors and

with directors’ improved ability to officers have difficulty providing

discharge their main duties. The first specific concrete examples of

duty that comes to mind is the duty instances or ways in which diversity

of care, skill and diligence (s. 174 of adds value to their boards (Broome

Companies Act 2006). The improved et al., 2011).

access to information, the diversity

of viewpoints, and the greater scope

for debates could increase the

quality of business judgment and

the outcomes of board deliberations.

Another example is directors’ duty to

take into account the interests of

relevant stakeholders, while

promoting the success of the

company as a whole (s. 172 of

Companies Act 2006). Board

diversity may help directors weigh

more accurately the relevant

considerations by helping to correct

some of their prejudices and biases

(Langevoort 2011). The different

traits or characteristics associated

with a certain ethnicity or gender

create cognitive and behavioural

diversity in the boardroom, which in

turn may lead to a more balanced

weighting of relevant considerations

for each decision. Another way in

which diversity could improve

compliance with this duty is the

difference between male and female

directors in terms of self- and other-

orientation: it has been argued that

women directors have a greater

“other-orientation” (Langevoort

2011), and hence are more

committed to the development of

stakeholder relationships and the

long-term firm value.

A diversified board increases non-

executives’ independence by

reducing the probability of

“groupthink”. Groupthink is a feature

of homogenous groups, manifested

in loss of individual creativity and

independent thinking due to loyalty

to group norms and desire for

harmony (Janis 1972). Diverse

boards undermine the homogeneity

required by groupthink and reduce

the likelihood of uncritical rubber-

stamping of management’s

decisions.

Valsan Remus, Board diversity as a corporate governance tool, online:

<https://www.ecclblog.law.ed.ac.uk/2013/12/02/141/>, December 2, 2013.

Why are some groups well represented in corporate leadership positions

while others are not? Would increased heterogeneity result in different

financial outcomes or differences in how firms are managed? And should

global regulators intervene with corrective measures that attempt to

diversify corporate hierarchies, or would this represent an unjustified

interference with market sovereignty? If intervention is warranted, what

form should it take?

These justifications, in turn, engage some of the most fundamental issues

of corporate theory . Questions of whether and how the state should seek

to increase corporate governance diversity are strongly linked to competing

conceptions of the corporate form. Is the firm’s primary purpose to

maximize the wealth of shareholders ? Does it also exist to promote the

general social welfare?

This book is also fundamentally about a set of questions that have received

much less attention from legal scholars of the corporation: questions

involving the social phenomenon of diversity . Diversity itself is an

amorphous and heavily contested concept. Construed expansively, it might

encompass the full array of groups and persons that compose any given

community. Sociologists of culture, however, identify it as a “keyword” – a

linguistic expression that possesses widely acknowledged connotations but

is also “open to local interpretation” and dependent on context and “the

social location of the speaker.” As Schuck observes, diversity “means

different things to different people” and can “mean different things even to

the same person at a single point in time.”

In global policy dialogues,

commentators and policymakers

invoke different justifications in

support of these diversification

efforts. They frequently present

economic rationales, the argument

being that diversified boards may

enhance organizational financial

performance . Also important, albeit

frequently overshadowed, are

equality-based arguments.

Aaron A. Dhir, Challenging Boardroom Homogeneity: Corporate Law, Governance, and

Diversity (Excerpts), Cambridge University Press, 2015.

The State’s analysis suggests that “[t]o defend the constitutionality of this

bill, it would not appear to be enough to simply cite statistics showing that

women are grossly underrepresented on corporate boards. The defenders

of the bill would most likely need to show specific evidence of

discriminatory behavior, rather than simply inferring discrimination from the

disproportionate numbers.” On the other hand, the analysis observes that

“because courts have held in some cases that past discrimination and

differences in opportunity, when demonstrated with specificity, can justify

gender classification, this may be a potentially promising strategy for

supporters of the measure,” assuming they can marshal the necessary

evidence with the requisite “specificity.”

Courts also consider whether the means used to achieve the State’s

interest are “narrowly tailored, meaning that they must be the “least
restrictive” or “least discriminatory” means of achieving the State’s

interest.” The analysis concludes that “SB 826 would likely be challenged

on equal protection grounds and the means that the bill uses, which is

essentially a quota, could be difficult to defend.”

If SB 826 fails on equal protection grounds, under either the United States

or California constitutions, then no corporation will be required to add any

women directors. Moreover, the legislation’s opponents will likely seek a

stay of SB 826’s effective date pending resolution of its constitutionality.

That litigation will take years. No one should therefore be confident that

the legislation will take effect according to its contemplated timetable.

Opponents of all forms of affirmative action will likely characterize SB 826

as an example of the potential over-reach of race-based and gender-based

statutory distinctions. They will likely argue that if SB 826 is allowed to

stand, then the federal government, states, and local authorities will be

able to mandate racial and gender quotas across a broad range of private

sector activities. Affirmative action's opponents will construct examples of a

broad array of governmental intrusions into the private sector that would

arguably be permissible if SB 826 is held to be constitutional. These

examples will be carefully fashioned to create politically divisive fact

patterns. The objective will be to create a parade of horribles designed to

stimulate a broader backlash against affirmative action efforts, not just

against efforts to add diversity to corporate boards.

Shareholder activism by major institutional investors is far more likely than

SB 826 to increase the number of women directors at publicly traded

corporations. Shareholder activism can achieve this result on a national

basis, and would not be limited to the very small number of corporations

headquartered and chartered in California. Shareholder activism can,

moreover, achieve those results quickly, with no collateral risk to the

evolution of affirmative action jurisprudence, and with no litigation-induced

delay.

"Board diversity should be considered by the board or the nominating

committee. The director nomination process and policy should consider a

diverse mix of skills, background, experience, age, gender, sexual

orientation and identification, cultural and ethnic composition that are most

appropriate to the company’s long-term business needs. The board should

disclose the policies or procedures used to ensure board diversity. Diversity

goals should include cultural diversity in addition to gender and/or race

diversity. CalSTRS will hold members of the board’s nominating and

governance committee and if necessary the entire board accountable if,

after engagement about the lack of board diversity, sufficient progress has

not been made in this regard." CalSTRS Corporate Governance Principles,

p. 6, updated Nov. 1, 2017.

Joseph A. Grundfest, Mandating Gender Diversity in the Corporate Boardroom: The

Inevitable Failure of California’s SB 826, Stanford University Rock Center for Corporate
Governance: Working Series No. 232, September 12, 2018.

"Board diversity should be thought of in terms of skill sets, gender, age,

nationality, race, sexual orientation, gender identity, and historically under-

represented groups. Consideration should go beyond the traditional notion

of diversity to include a more broad range of experience, thoughts,

perspectives, and competencies to help enable effective board leadership.

A robust process for how diversity is considered when assessing board

talent and diversity should be adequately disclosed…." CalPERS,

Governance and Sustainability Principles, at 16 (June 18, 2018),

https://www.calpers.ca.gov/docs/forms-publications/governance-and-

sustainability-principles.pdf.

Fewer large companies are run by women than by men named John, a

sure indicator that the glass ceiling remains firmly in place in corporate

America.

Justin Wolfers "Fewer Women Run Big Companies Than Men Named John ," The New
York Times, March 02, 2015, accessed at
https://www.nytimes.com/2015/03/03/upshot/fewer-women-run-big-companies-than-
men-named-john.html.

In this study, we examined the effect of board diversity for Philippine firms

during the period 2003 to 2014. Using an unbalanced panel of 2648 firm-

years, we found that greater board diversity did not significantly affect

either short-term firm performance or long-term firm value. Our findings

show that female and male corporate leaders have comparable

competency levels and that increasing women’s presence on corporate

boards has no discernible effect on firm performance.

Unite, A.A., Sullivan, M.J. & Shi, A.A. Board Diversity and Performance of Philippine
Firms: Do Women Matter?. Int Adv Econ Res 25, 65–78 (2019).
https://doi.org/10.1007/s11294-018-09718-z