More women could join the boardrooms of at least three Fresno companies thanks to a new state law signed by Gov. Jerry Brown.
SB 826 mandates the presence of women on the boards of companies publicly traded on stock exchanges such as NASDAQ or NYSE. Three such companies are headquartered in Fresno, all banks — United Security Bank, Fresno First Bank, and Central Valley Community Bank.
The law establishes a timeline of when companies need to implement changes. By Dec. 31, 2019, each board needs to have at least one woman. Companies with more than six board members would need three female directors by the end of 2021. Those with fewer than six members would need two women.
The law imposes a $100,000 fine for a first violation and a $300,000 penalty for subsequent violations.
Fresno Companies Comply — For Now
The three Fresno banks already pass the first checkpoint. United Security Bank has one woman on its 10-member board, Central Valley Community Bank has one woman on its 11-member board, and Fresno First Bank has two women on its 10-member board.
“We don’t make the choice based on whether somebody is male or female. We make the choice based on what’s in the best interest of the shareholders, the bank, and what skill set they bring.”—Jim Ford, president/CEO Central Valley Community Bank
Jim Ford, president/CEO and board member of Central Valley Community Bank, said his company will comply with the law’s requirements.
“We’ll have to evaluate our board composition for 2020 and 2021,” Ford said, noting they would have to add two more women. “We haven’t made the decision yet whether we will increase the size of our board.”
Members are added through a nominating committee and ratified by a vote of stockholders. Turnover is slow. CVCB has added four new members in the last four years (two replacements, and two members as the board expanded).
“We don’t make the choice based on whether somebody is male or female. We make the choice based on what’s in the best interest of the shareholders, the bank, and what skill set they bring,” Ford said.
Mark Saleh, chairman of Fresno First Bank, sees the value of women on his board.
“Diversity, especially when it comes to creating a high-performance board which is always our goal at the bank, is a very important aspect. We look at that when we recruit and change the makeup of our board,” Saleh said. “The board always needs new, fresh ideas and perspectives. That comes from different life experiences.”
Fresno First Bank’s method for adding board members is similar to Central Valley Community Bank. Saleh could not predict what his board will do by 2021. They would need to add at least one woman.
“We are a small fish in a big pond. We will comply with whatever the law will be,” Saleh said.
A Female Board Perspective
“The best person who is qualified should be on the board, but there are a lot of advantages to having different experiences from different genders, cultures, ethnicities … we gain a lot from each other.”—Fresno First Bank board member Sheila Frowsing
Sheila Frowsing runs her own insurance agency and has served on the Fresno First board since 2014. She is one of two female members there (along with interior designer Lorrie Lorenz).
“The best person who is qualified should be on the board, but there are a lot of advantages to having different experiences from different genders, cultures, ethnicities … we gain a lot from each other,” Frowsing said.
She says that her bank provides opportunities for women whether in the boardroom or on the bank floor.
“We have very good representation of females in the bank. It is part of our culture. The board brought on two women, which is great,” Frowsing said.
Frowsing said that she is on the board mainly because of her professional background.
“(The board) wanted someone to see things through a risk management mindset. That was the first reason why I was on the board,” she said. “I think they were also looking for another female perspective, just because they realize the value of that.”
Will Law Survive a Legal Challenge?
Stanford business and law professor Joseph Grundfest analyzed the law, releasing a study last month (before the governor signed it into law). He expressed serious doubt that the law would survive a legal challenge.
“While well intentioned, this legislation will not achieve its intended effect because it is unconstitutional as applied to the vast majority, if not all, of publicly held corporations headquartered in California,” Grundfest wrote in a paper for the Rock Center for Corporate Governance.
“The board always needs new, fresh ideas and perspectives. That comes from different life experiences.” — Mark Saleh, chairman of Fresno First Bank
Grundfest argues that just because a company is headquartered in California, it does not mean it is chartered in California. Many are incorporated in Delaware because of that state’s friendly business laws.
Therefore, the Constitution’s commerce clause would supersede regulating most of the 721 publicly-traded companies in the Golden State. Grundfest says SB 826 would only apply to 72 companies, including the three Fresno banks.
As a result, the bill would increase female representation on California boards by less than 1%.
He proposes an alternative.
“California can use its significant capital market influence to induce major institutional investors to mount more aggressive activist campaigns that can rapidly and materially increase boardroom diversity,” Grundfest wrote. “These campaigns have a demonstrated history of success. They will not generate years of litigation, will not be limited to California-chartered corporations, and will pose no risk to affirmative action jurisprudence. Properly structured shareholder activism is the better, smarter way to proceed.”