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On 29 and 30 August 2018, the California Legislative Assembly and the United States (US) Senate respectively, passed a bill to amend the States Corporations Code, the equivalent of our Companies Act prescribing minimum female director representation in the boards of all companies whose principal executive offices are located within the state of California.
The bill provides that by no later than the close of the 2019 calendar year each company must have a minimum of one female director on its board. By no later than the close of the 2021 calendar year each company which has six or more directors must have a minimum of three female directors. If there are five directors there must be a minimum of two female directors and if there are four or fewer directors the company must have at least one female director.
The violation of these provisions will render the companies liable to fines ranging from approximately R1.5m to R5m. The severity of the penalties demonstrates the lengths to which the state of California is prepared to go to enforce diversity within its companies.
The introduction of this law is surprising for a developed country and old democracy, however, it is an incontrovertible truth that human bigotry and prejudice know no borders and are almost always resistant to change and diversity. Perhaps the lesson for South Africa, where the need for diversity is a double-whammy of gender and race, is that those who are in control of the means of production will resist diversity and inclusivity for many centuries to come.
In motivating for the passing of the bill its promoters have demonstrated – relying on what appears to be credible and well documented research – that diversity is not a "nice to have" but if implemented sincerely without tokenism has positive results, including tangible and proven increase on return on equity, resilience to recession and healthy appetites for debt. The research relied on by the promoters of the bill is instructive to the notion that racial and gender inclusivity in commerce in general and board membership in particular if properly done can only serve the interests of all stakeholders.
It is also noteworthy that after many centuries of mature commerce which undoubtedly encouraged diversity only through dangling carrots, nothing has improved in this regard in no less a country than the US, the self-proclaimed land of the free.
In our 24-year-old democracy we are still caught up in the misguided belief that, if the Californian experience is anything to go by, out of the goodness of people’s hearts and the conviction to do the right thing, diversity in the boards of our companies will improve as a result of carrots such as black economic empowerment status and preferential procurement we could not be more naive.
The Broad Based Black Economic Empowerment Commission report on National Status and Trends on Black Economic Empowerment issued on 31 March 2018 records that out of the 121 JSE listed companies’ management only 22% thereof are female and 20% thereof are black. Anecdotal observation seems to belie the 20% representation range reported by the BBBEE Commission.
It is true that most of South Africa's leading companies are peppered with one or two black or female directors which clearly does very little for diversity. On commenting about the bill in California Jena McGregor of The Washington Post, quoted Alison Konrad, a professor at Ivey Business School at the Western University in Canada, saying “that the women seem to still be viewed as representing a category. Part of this is a cognitive thing – being the only X in a field of Os. The thing that makes you different than everyone else becomes very highly salient in others’ minds, and that affects how people perceive everything you do.”
Many a South African black or female director can attest to the experience of being the only "X in a field of Os". With due regard for the demographic makeup of the country we are a long way away from the ideal.
South Africa is clearly headed the American way where hundreds of years later there will be no improvement on diversity unless something gutsier like the Californian bill is brought about.
The current "comply or explain" kind of voluntary compliance, based on these American experiences is demonstrably inadequate. Taking a cue from a matured and old democracy like America the bodies that have the powers to do so such as the JSE through its listing requirements, and the legislature through its powers to create laws, may do well to bring about stringent diversity compliance requirements with the concomitant proverbial stick to match, at the levels legislated in the state of California if not more given the dire need for diversity in the boardrooms of South African companies.
- Matodzi Ratshimbilani is director of Tshisevhe Gwina Ratshimbilani Inc.
Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
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