Women On Boards: New Law Could Shape The Makeup Of CRE Boardrooms

Betsy Berkhemer-Credaire has long noticed a problem: There are no women on the boards of one-fourth of all the companies on the Russell 3000 index, which monitors the largest publicly traded companies in the U.S.

It is an issue her organization and others are trying to address. Now a new California law could help create more diversity at the highest levels of corporate America, including some of the country’s largest commercial real estate companies.

“Traditionally, especially in the real estate business, corporate boards wanted chief executive officers on their boards, and many women have not been CEOs until recently,” said Berkhemer-Credaire, who is CEO of 2020 Women on Boards, an advocacy group that wants corporate boards on the Russell 3000 made up of 20% women by 2020.

California SB 826 was signed into law during the summer and requires every publicly traded company with headquarters in California to have at least one woman on its board of directors by 2019. By 2021, boards with five members are required to have at least two female members, and boards with six or more members will need three women. California is the first state to have this requirement.

“Given that commercial real estate is an industry that has been traditionally populated by male executives and board members, SB 826 will likely have sizeable impact on California CRE firms that are publicly owned,” Farella Braun + Martel employment partner Holly Sutton said in an email.

Opponents say this is an example of more government oversight and could lead to companies favoring one gender and minority group over another.

Public companies based in California likely won’t feel the impacts of the new law in the first year of implementation. Of 27 commercial real estate companies headquartered in California that Bisnow analyzed, all except two had at least one woman on their board, and Glendale-based PS Business Parks, Kennedy Wilson, The Macerich Co. and Los Angeles-based CBRE Group have three women on their boards.  

Sutton said many CRE companies have already been seeking to diversify, often due to client demands and research data that shows the benefits of having a diverse board.

CREW San Francisco President and Holland & Knight partner Stacie Goeddel said it is very possible that this type of law could catch on in other states, especially since a lot of progressive laws start in California.

Ensuring Diversity Or Government Meddling?

The law comes five years after California became the first state to adopt a resolution urging publicly traded companies to add more women on their boards by 2017. Less than 20% of those companies headquartered in the state have the minimum number of women directors called for in a 2013 resolution, according to state Sen. Hannah Beth Jackson, who championed that resolution and co-authored SB 826.

It was those companies’ lack of inclusion of women on their boards during the four years since the initial resolution that led up to the drafting and eventual passage of SB 826.

“There have been numerous objections to this bill and serious legal concerns have been raised,” Gov. Jerry Brown said in a letter explaining why he signed the bill. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation. Nevertheless, recent events in Washington, D.C. — and beyond — make it crystal clear that many are not getting the message.

“Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”

Of the 446 publicly traded companies in the Russell 3000 index and headquartered in California, women directors held 566 seats, or 15.5%, while men held 3,089 board seats, or 84.5%, according to the bill.

The California Chamber of Commerce and several of its affiliates have opposed the law, saying that companies have already made strides with their own diversity initiatives and that this law, while well-intended, only considers one element of diversity.

CalChamber argued that if qualified male and female candidates were up for one board position, “SB 826 would require the company to choose the female candidate and deny the male candidate the position, based on gender.”

“Gender is an important aspect of diversity, as are the other protected classifications recognized under our laws,” according to the letter from CalChamber. “We are concerned that the mandate under SB 826 that focuses only on gender potentially elevates it as a priority over other aspects of diversity.”

RETS Associates principal Jana Turner is a proponent of women being included on the boards of directors of commercial real estate companies, but she said the law is not the best way to do it. RETS Associates is a Southern California-based commercial real estate recruiting firm.

“I believe that companies were going to get there without [the government] having to mandate it because of the growing [women’s movement in CRE] momentum,” Turner said. “I think it’s going in the right direction. My concern is the woman might still be a minority on the board and would her voice be heard or broadcast loud enough to make a difference?”

“You have to get the right woman,” Turner said. “And you have to have a board open to their thoughts and ideas.”

Birtcher Development Managing Director Brooke Birtcher said the new law could stigmatize women.

“The intention is good, but to ‘force’ at least one woman to serve on a board might make one question if they were chosen because of merit or because of law,” Birtcher said in an email. “It would come down to one’s own self confidence to know the latter is not the case, but in my opinion it’s unfortunate that the ‘stigma’ could serve as a cloud of question for both the men and woman serving. And then it begs the question, where does it end? Will a law be passed that ethnicity is a qualification for selection? Or religious background?

“In the free world we live in, I think the beautiful thing is that we’re all given equal opportunity to choose our own path in the working world without any legal prerequisites guiding those choices. With this law, I feel those lines start to blur.”

Supporters of the law have formed arguments against potential challenges. Berkhemer-Credaire said the language of the law tried to stay away from using the word “quota,” which can have negative connotations.

“Quota is a nasty word in business because nobody wants to be told what to do,” she said.

Another issue that could crop up is that even though companies are headquartered in California, many are actually incorporated in Delaware, which has fewer corporate regulations. The law states that even companies incorporated in other states but headquartered in California have to comply with the law, Berkhemer-Credaire said.

The law isn’t intended to take away a seat from a male director, Berkhemer-Credaire said. She said companies should just add a seat and can legally do that. Paying additional compensation also is a nonstarter argument because the company would have to pay upward of $100K in fines for not following the law, she said.

“They may as well add a woman to the board,” she said.

CREW San Francisco’s Goeddel said while she thinks this law will help increase diversity, focusing on diverse boards is only part of an ongoing conversation about gender inequities.

For women to have more equity at home and in the workplace, the burden of child care needs to be addressed as well as the gender pay gap and many other issues, Goeddel said.

“The conversation should not end here,” Goeddel said. “While this is a very positive development, there are other policy problems with women and inequity.”

Why Have Boards Struggled To Be Diverse?

Corporate boards have long been male-dominated. Companies traditionally want CEOs on their boards since it looks good to Wall Street to have CEOs advise and counsel, Berkhemer-Credaire said. Since many women haven’t been CEOs until recently, there has been an artificial roadblock for getting women on corporate boards across multiple industries, including commercial real estate, she said.

Another part of the issue is unconscious bias, Goeddel said.

“People tend to identify with and promote people who are like them,” she said. “Companies need to look at internal hiring and processes to look for unconscious bias. If you’re not paying attention, the inequity is not being addressed.”

With more enterprise risks, regulations and technological advancements, companies now need a wider variety of expertise on their boards, which has created new opportunities for women, Berkhemer-Credaire said.

She said women need to be better at expressing their expertise whether that be mergers and acquisitions, real estate development, tech or finance, and their willingness to be on a board.

“The pipeline is overflowing with qualified women executives and business owners in finance, real estate, construction and related fields,” Berkhemer-Credaire said.

Data has shown that more diverse companies can be more profitable.

Companies with women on boards earned 3.5% in compound excess returns annually from 2005 to 2015 compared to companies with no women on their boards, according to Credit Suisse’s The GS Gender 3000: The Reward for Change report, which analyzed 3,400 companies globally.

A report from CREW Network revealed that companies with a female CEO or chairperson typically average a 25% annualized return, which is double the average 11% return of the MSCI World Index benchmark that measures large and mid-cap equity performance in 23 developed markets.

“Companies with women on boards are more profitable and more productive,” Berkhemer-Credaire said. “Women take more calculated risks. … Women always think about the unintended consequences.”

PS Business Parks CEO Maria Hawthorne, whose nine-person board has three women, said diversity at the management and board levels has led to better decisions that come from different insights and fresh perspectives.

“By hiring employees and nominating board directors with diverse backgrounds and perspectives, we fuel insight, success and shareholder value,” Hawthorne said. “We strive to create diversity of background, experience and influence in our workplaces and at our governance level which is reflective of both our employee base and our customer base. We feel that this spirit of inclusion creates trust and invites ideas and varied discussions.”

San Francisco-based Prologis, which has two women on its 12-person board, has a commitment to diversity on all levels, including the boardroom, said Edward Nekritz, the company’s chief legal officer and general counsel.

“We believe that a diverse board is not only sound management practice; it also adds value to our enterprise, as we gather the best ideas from a variety of backgrounds and experiences,” he said in a statement. “Whether it’s gender, racial, geographic or any other dimension of diversity, we look to find board members who can provide unique perspective and guidance as we seek to deliver significant value to all of our stakeholders.”

Though she is against the law, Turner said women on boards makes sense.

“It’s good for business. Why wouldn’t you do it?” Turner said. “It’s a good business strategy. It doesn’t need to be a government strategy.”

How Can CRE Boards Become More Diverse?

Regardless of a law or requirement, to become more diverse means changing the way CRE companies recruit upper management and their directors.

Companies are starting to use nontraditional means of finding the right expertise to fill their boards. Rexford Industrial Trust used LinkedIn to find board member Diana Ingram, who has more of a background in technology than real estate, Berkhemer-Credaire said. She said the board was looking for someone with a strong technology background instead of a real estate background.

This situation is still unusual since most people who get onto boards rely on their own networks and relationships instead of a broader recruitment tactic, Berkhemer-Credaire said.

“CRE companies — like many companies — find that to diversify their teams they may need to take a less traditional approach to recruiting,” Farella Braun + Martel’s Sutton said. “This could include recruiting from sister industries like residential real estate, and considering candidates with marketing, legal or other backgrounds, recognizing that certain analytical and communications skills are transferable.”

Boards could also partner with business organizations that support women.

In addition to CREW, there are plenty of organizations and networking groups that boards can turn to to find qualified female directors, Berkhemer-Credaire said. Women Corporate Directors and Direct Women also have robust memberships and can provide good avenues for real estate companies to find board candidates, she said.

Although the law applies to public companies, Goedell said it could impact private companies as well, especially if a public company uses its diverse board as a competitive edge.

“I think it is going to be a very positive impact,” Berkhemer-Credaire said. “Our goal is to have it be unthinkable to have a corporate board that doesn’t have women on it from all ethnic backgrounds.”

CORRECTION, OCT. 25, 10:42 A.M. PT: A previous version of this story misspelled the name of Farella Braun + Martel. The story has been updated.

CORRECTION, OCT. 26, 9:33 A.M. PT: A previous version of this story did not recognize that Kennedy Wilson has three women on its board of directors. The story has been updated.