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California Tells Publicly Traded Companies to Submit or Leave

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I thought it was supposed to be Republicans that were the fascists.

I was reading this article in the Wall Street Journal and it pissed me off.  If you are publicly traded in California and base your operations there, you have to have at least one female board member.

To be clear;  I am not against female board members.  Women are just as qualified to be board members as men.  The same goes for anyone of any race, gender or sexual orientation.  Some of the best board members I know are women.  My board playbook that I send to every startup I invest in comes from Donna Zarcone who is one of the greatest resources you can find when it comes to how boards should be selected and operate.

There is no white guy cabal that actively discriminates against women being on boards. The make up of public company boards should not be compelled by government.  They are to be elected and nominated by the shareholders.  Shareholders have skin in the game.  Government doesn’t.  If the public wants skin in the game and some say, pony up and call your broker and buy some stock.  The more you buy the more you can vote.  It’s like Chicago Machine politics in a way.

I agree with the Chamber of Commerce in this case.  The spirit and intent of the legislation is correct.  But, it’s unconstitutional and it is highly discriminatory.  In the past years, I have found myself disagreeing with a lot of what the Chamber of Commerce wants.  The Chamber can be distinctly crony capitalist.

This legislation emanates from the same philosophy as Massachusetts Democratic Senator Elizabeth Warren’s harebrained scheme on federally chartered corporations.  Her proposed legislation/regulation is a strong step to a dictatorial state.

If we want to play the social justice warrior game; why not a statute requiring a gay woman, a gay man, an African-American of each gender, and each sexual orientation, along with Hispanic, Asian, Indian, and any other permutation of race, sexual orientation and gender including people that were exploring and others who just felt that way that day?  What’s so special about simply being a female without any of the other stuff?  Don’t forget, you need white people with the same permutations.

Instead of a board, you’d get a Senate or a House.  We know how well that works.

What if there aren’t enough qualified women to serve?  Can women hold public companies hostage and get more pay or equity than other board members?  Is it insulting to women to put an unqualified woman on a board that is a placeholder just to meet the outlines of the statute?

To be clear, if you serve on 2-3 public company boards, that’s about your limit.  There is a lot of responsibility that goes with it if you are going to do the job well.  If California decided to write a statute limiting the amount of boards you can be on, I’d have an easier time getting behind it but still, it’s up to the company and their shareholders.

I think that most people have a vision that board members just show up, banter on about their golf games, have a nice catered lunch, check the financials, tell some off color dirty jokes, vote to approve the minutes and then get a paid flight home.

Does networking happen in a board room?  Yes. Board members are human and people that serve on public board are usually networking animals.  They are good at it.  That’s why they attained various C level positions and they use their networks to benefit the company they work with.

This is important and not a light point to be ignored.  Public board members have a fiduciary responsibility to shareholders, to the market and to the public at large.  That’s why there is Director and Officer Insurance and it’s also why that insurance on a public company board isn’t cheap.  When you serve on a board or are an officer of a firm there is potential liability, civil and criminal.

This isn’t the 19th hole at the club.  “Can I get a second to approve the minutes?  Do I hear a motion for more stock options for everyone?  All in favor… Scotch for everyone!”

Here is what really sounded stupid to me:

California state Sen. Hannah-Beth Jackson, a Democrat, says women’s insight ‘is critical to discussions and decisions that affect corporate culture, actions and profitability.’

Why?  Why is having one woman in the room with their insight so critical that there needs to be a legislative mandate?  How come their insight is more important than other’s insight?  This line of logic is so misconstrued and incorrect it feels like it came from The Onion but it didn’t.  Didn’t Enron have female board members?  The state senator says that “women make 70% of the purchasing decisions” but that’s a pretty specious statistic with no rigor around it.  I am going to call bullshit on it and say they didn’t cut the statistics right.  In business, purchasing decisions are but one part of strategy and successful execution of a business.  If you suck at operations and manufacturing and innovation and development and marketing, ain’t gonna be no purchasing decisions and no one will get to serve for very long on the board.

Boards are complex organisms.  The good ones act like organisms.  They shouldn’t be power centers and piggy banks for C level executives and board members. For public companies, boards not only support the management team, but can be counsel for management.  They can mentor management.  They use their networks to benefit the goals of management.  They also fire management and can take control of a company.  If you haven’t been through that exercise I can tell you that it is not any fun.  A good board is worth every penny you pay it and investors that are invested in companies with great boards should count their lucky stars.  I have seen dysfunctional boards and it’s bad for business.  Women don’t necessarily mean boards will be more or less functional.

Board size is a big issue.  When we invest in startups at seed, we advocate for a three person board.  Often we get a five person board.  With public companies, it depends on the size of the company but having more than 9-11 is probably too many.  It should always be an odd number.  If you are between 5, 6 or 7, do less.

When I was at CME, the exchange had to live up to mandates from the CFTC on board make up.  In 2000 I recall we had 44 board members.  At that time, the board members operated various parts of the exchange so it was different than a public company.  We had to have people on the board that were not affiliated with the exchange.  When we demutualized we allocated 6 seats to the former seat holders (B shares).  The exchange would not have gotten approval from the membership if the members were not included in governance and the exchange wouldn’t be where it is without that approval.  That board had enough emotional intelligence to realize that we needed to shrink and we voted ourselves off the board.  The current B share has value beyond board seats and very few people that weren’t around in the old days understand their strategic value.  Unwittingly, it turned out to be the first securitized crypto-token ever issued.  They should issue more of them.

Some favor term limits on boards.  I empathize with their concerns but at the end of the day they are misplaced.  As I said above boards are complex organisms and injecting artificial constraints like term limits on a private business is not good for business.  Term limits for elected government officials at all levels of government are a good idea and good for business along with individual liberty.

All that being said, I do think more diversity on boards is a good idea.  More boards are exhibiting this diversity by adding board members that are different skin colors or genders than presently exist.  But, it cannot be for diversity sake.  Simply plugging in a paint by numbers board will get you a paint by numbers board.  It will not perform or execute. Diversity of ideas and experience is exponentially more important than what someone looks like.  Getting appointed to the board has to be because that person is uniquely qualified because of some merit based standard that the shareholders or the company management team sets up.  Board members of public companies represent the shareholders-not some normative goal that will change over time from the chattering class.


Source: http://pointsandfigures.com/2018/08/30/california-tells-publicly-traded-companies-to-submit-or-leave/


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