BlackRock, Inc. (“BlackRock”), the world’s largest asset manager, has called for its portfolio companies to increase their gender diversity on director boards. (Vanessa Fuhrmans, The Wall Street Journal). In a set of proxy voting guidelines posted in February of last year, the global investment company stated that they would “normally expect to see at least two women directors on every board.” Id.Blackstone’s public call-to-arms represents a significant shift in investment firms that, in the past, have only privately urged corporations to expand the role of women on boards of directors. While companies in the U.S. have been slow to respond, many European nations have introduced legislation that mandates gender diversity on corporate boards. This post will highlight Blackrock’s commitment to gender diversity, the emergence of EU legislation establishing gender quotas for director boards and scientific studies that support the increase of women on companies’ director boards. 

Headquartered in New York City, BlackRock manages $6.85 trillion in assets for individuals and entities around the world. (BlackRock). As part of their asset management division, Blackrock holds a significant financial interest in over 50 corporations. These “portfolio companies” – corporate entities that are one part of a firm’s holdings – include Uber, Postmates and Luckin Coffee. These are the particular companies that Blackrock has called upon to increase their female representation on corporate director boards. From an internal perspective, BlackRock has announced a commitment to achieving 30% female representation in senior management by 2020. (Vanessa Fuhrmans, The Wall Street Journal). Currently BlackRock has 18 board members, including 5 women and one African American. (BlackRock Investor Relations). A couple of months after BlackRock called for an increase in gender diversity, it sent letters to companies in the Russell 1000 Index with fewer than two women on their boards asking them to explain their lack of progress. (Emily Chasan, Bloomberg).

The U.S. federal government does not have a mandatory gender quota for corporate boards of directors. However, the Securities and Exchange Commission (“SEC”) does require diversity disclosures when preparing Item 401 disclosures regarding directors and executive officers. (Jeff Feslser et al., Sheppard Mullin Corporate Law Blog). At the state level, California recently enacted Senate Bill 826 that will require any publicly traded company with a principal executive office in the state, regardless of incorporation location, to have at least one woman on its board of directors by the end of 2019. (Howard Dicker et al., Harvard Law School Corporate Law Blog). Companies that fail to adhere to the law will face a $100,000 initial penalty and additional fines of $300,000 for any subsequent violations. Id.The bill also requires any companies with five directors to have at least two women on the board and any companies with six or more directors to have at least three women directors by the end of 2021. Id.When the legislation was passed in California, only 11 percent of the qualified companies met the 2021 requirements. (Mikayla Kuhns, Rudy Kwack and Kosmas Papadopoulos, Columbia Law School Corporate Blog). No other state in the U.S. has gender diversity laws for corporations. 

From an international perspective, European nations have recently passed legislation requiring gender quotas on all corporate boards. Norway was the first nation to pass such a measure in 2004, when it required 40 percent of board seats to be filled by women. (Vanessa Fuhrmans, The Wall Street Journal). Germany is the largest economy to have gender quota requirements, as national legislation requires 30 percent of directors be women. Id.Other nations, including Spain, Iceland, the Netherlands, and France have passed similar legislation establishing gender quotas for board seats. Id.In Italy and Germany, the number of women on big company boards has quadrupled in recent years according to a report from the Corporate Women Directors International Group. Id.

Michelle Edkins, the Global Head of Investment Stewardship at BlackRock, believes that “A lack of diversity on the board undermines its ability to make effective strategic decisions. That, in turn, inhibits the company’s capacity for long-term growth.” (Sarah Krouse, The Wall Street Journal). Academic studies have supported her assertion by highlighting the positive effects that come from increased gender diversity on corporate boards. A Spanish study following the implementation of Spain’s gender diversity quota law found that an increase in female representation on boards positively influenced a firm’s economic performance. (Nuria Reguera-Alvarado, Journal of Business Ethics). A 2017 Study by MSCI, a provider of financial analysis tools, found that during the five-year period from 2011-2016, companies with three or more female directors performed 45 percent better from an earnings-per-share perspective than companies without any female directors. (Meggan Thwing et al.,MSCI). Credit Suisse found that companies with at least one female director had a two percent greater return-on-equity (“ROE”) than companies that had no female directors and also had greater price-to-book values. (Credit Suisse). Finally, a 2012 study by UC Berkeley Haas School of Business found that companies with women on their boards are more likely to be committed to creating a “sustainable future” and striving for higher levels of transparency. (Kellie McElhaney et al., UC Berkeley Haas School of Business).

Moving forward, it will be interesting to see how aggressive BlackRock decides to be with their commitment to growing gender diversity and how companies react to California’s new gender quota laws. With over $6 billion in assets, Blackrock’s ability to sway corporate votes is only going to get stronger. Also, California’s harsh penalties under the gender quota law, paired with growing traffic issues, high state taxes and exorbitant housing prices could potentially influence more businesses to move their headquarters out of state. Both issues will be prevelant in the fight for gender equality on director boards. As of now though, it appears change is coming to the boardroom, whether companies are willing to accept it or not.