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By Yoree Koh
In Silicon Valley, having a woman in the boardroom has become a must -- literally.
A California law passed in September mandates that all publicly held companies with headquarters in the state have at least one female board member by the end of 2019, which has set off a scramble for candidates. Some companies with one female director will need to add one or two more, because the law also requires that by 2021, publicly held firms with at least five directors have two or three female directors or risk financial penalties.
Some companies that may fall into the latter category are Facebook Inc. and Google parent Alphabet Inc. Both will need to add a third female director within a few years since their boards have more than six directors. The companies declined to comment.
Of the 459 publicly held companies in the Russell 3000 Index that have headquarters in California, 16% are fully compliant with the law, meaning companies with five board members have at least two female directors, or companies with six or more board members have at least three female directors, according to Equilar, a research firm that tracks data on executives and boards. Narrowing the field to only the tech industry reveals a slightly worse picture: Just 13% of the 140 tech companies in the index are in full compliance with the law today.
While the law doesn't directly affect privately held companies, it puts pressure on startups that aspire to one day go public. Among the 139 U.S.-based startups that are valued at $1 billion or more and that have board data available, 88 didn't have any women on their boards as of Oct. 15, according to data from PitchBook. Of the 90 of these startups based in California, 59 didn't have any women on their boards.
Studies have shown that increasing diversity in a company's top ranks leads to better business performance. The problem, according to recruiters and search executives, is that a lot of tech firms put former Hewlett Packard Chief Executive Meg Whitman and Facebook Chief Operating Officer Sheryl Sandberg at the top of their lists of potential directors -- but don't have many other candidates in mind.
The California law is already having an impact on publicly traded companies. TheBoardlist, an online marketplace for companies to find qualified female candidates for board seats, says it saw a 70% increase in inquiries from August to September, about twice the marketplace's usual search volume for that period. TheBoardlist CEO Shannon Gordon says a board search typically takes about nine months, leaving little time before the California law goes into effect at the end of next year.
Jana Rich, founder of San Francisco-based executive-search firm Rich Talent Group, says in the past month she has had about 10 requests from publicly traded companies in California for board searches across different industries, which she says is more than usual.
"There's been a huge influx of interest -- that's the 'Oh shoot' moment" where companies are suddenly thinking, " 'I've got to focus on it and I've got to focus on it now,' " says Ms. Rich.
The law's passage has spurred Shannon Grant, an angel investor and founder of San Francisco-based Deus Capital, to help organize informational dinners for women who are interested in joining boards of public companies. The first dinner, later this month, will be hosted by venture-capital firm Kleiner Perkins, according to a partner at the firm, and will feature a woman who has served on several public-company boards and other women who are directors and senior directors at tech companies. Sponsoring the dinner ties into Kleiner Perkins's work on diversifying the executive teams and boards of its portfolio companies, says Tylee Potter, a talent partner at Kleiner Perkins.
One challenge in recruiting women, says Ms. Rich, the executive-search -firm founder, is that some are wary of becoming the first female on a board and appearing to be a "token" appointment. She says female candidates often look for signs that a company is truly committed to adding diverse perspectives.
Katie Stanton initially had reservations when she was asked to interview to join Vivendi SA's board in 2014, when she was working in Paris as Twitter's head of international growth. According to Ms. Stanton, the recruiter told her that she was reaching out because of a 2011 French law that required all large companies to fill 40% of board seats with women by 2017.
"My first reaction was, quite frankly, sadness, because based on what the recruiter said, it appeared I might only be considered for a board role because of the need to meet the new rule," says Ms. Stanton, who is now the chief marketing officer of Color Genomics.
But she says gender never came up during her interviews with fellow board members. Instead, they asked about her background in Silicon Valley, about partnerships and how to steer some of their businesses such as the Universal Music Group into streaming. She ultimately joined the board as the second woman. Vivendi's 12-person supervisory board now has six women.
"I never felt different, with the exception of language," Ms. Stanton says.
Ms. Koh is a Wall Street Journal reporter based in San Francisco. She can be reached at firstname.lastname@example.org.
(END) Dow Jones Newswires
November 09, 2018 13:09 ET (18:09 GMT)
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