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Californian lawmakers shake-up the governance landscape in life sciences

 

Putting women on company boards is seemingly just too difficult. For the past few years, voluminous evidence showing the considerable advantages of a gender-balanced board of directors has trickled through to most leaders. Data from multiple studies and publications show the gap between the representation of men and women in boardrooms, strengthening the case for change. But despite the data, there has been nothing greater than incremental improvement when looking at women’s participation in boardrooms.

Such is the intractability of this problem, that we have seen governments around the world make various interventions to coerce business into acting. In countries such as Norway, Germany and France, quotas have been introduced to make companies add women to their boards. In the UK, the government chose not to introduce a quota, but instead set an ‘aspirational target’ with a thinly veiled threat to introduce a legal requirement should companies not act. The response was that the largest companies (FTSE100) boosted the numbers to 25% and are going beyond towards a revised target, while the FTSE 250 play catch up, although the cadence of progress has stalled throughout.

Now California, a US state with an economy larger than the UK and seven times greater than Norway, decided that it would act by introducing Senate Bill 826, requiring public companies to have at least one woman on their board by the close of 2019. Companies are then required by the close of 2021 to add further women based on the size of their board (i.e. the number of members). Boards of four directors must have one woman, boards of five directors are required to have two women, and boards of six or more members are required to have at least three. This bill means that public companies up and down the state of California are forced to diversify their boards through the addition of women, either within a year or within the next three. Of course, since the bill passed, many have spoken of the unconstitutional nature of this law and expect it to receive a legal challenge. This notwithstanding, the law imposes considerable challenges upon public corporations.

California is universally renowned for its technology industry and these companies will be under pressure to act. Also, the San Francisco Bay Area and San Diego in the south of the State are two of the biggest life science clusters anywhere in the world, and so this new law unquestionably impacts the biotech, pharma, medtech and life sciences service companies across the sector. The lingering question is – how much will they be affected?

Liftstream has authored multiple reports examining the data of gender representation in the life sciences sector and so we’ve delved into our data to see what the impact of Bill 826 might have on the life sciences sector.

We, therefore, selected publicly listed companies from across the sector who on their regulatory filings list California as their headquarters. This encompassed biotechnology therapeutics companies, biotech services, pharma and health technology.  Given that the law ultimately considers the board size, we focused on this issue first. Of course, adding a woman to a current board, without anyone stepping off, would increase the board size and could push the board to the next level of requirement. Conversely, to reduce the number of women needing to be appointed, companies may shrink the size of the company board – a pattern which has been witnessed in other places where mandatory thresholds have been set. For the purposes of our calculations, we assumed that boards would remain the same size through the 2019 and 2021 periods.

Fig 1. The average size of the board of public life sciences companies in California expressed in the number of directors.

If companies are to add women directors in the numbers required by the new law, it is imperative to question where this talent will be sourced from. Boards overwhelmingly prefer to select board members with board experience, and so knowing the participation of women on life science boards gives us a baseline population of sitting directors who may form the predominant target group for other board roles. It is true that a proportion of the current sitting directors will be from out of State, however, the fact they are serving on the boards of Californian companies implies a willingness by them to continue to do so.

Fig. 2. – Participation of women on boards expressed as a percentage of all serving directors across each category of public life sciences companies in California.

Women make up between 10.8-14.2% of boards across the different company types we looked at (Biotech Therapeutics, Biotech R&D, Other Biotech, Pharma, Medical Technology, Health Tech). Fig. 2. clearly shows that public biotechnology therapeutics companies in California have the lowest participation, which might also be attributable to it being the largest group of companies (n=140).

As we look to the most immediate challenge of having at least one woman on the board by the end of calendar 2019, it requires to understand just how many companies are currently without women serving as directors. Fig. 3. shows that in the case of biotechnology therapeutics companies and biotech R&D services companies, more than 50% of companies have no women on their board. This is consistent with previous data Liftstream has published as far back as 2014, which highlights the glacial progress that is being made.

Fig. 3. Percentage of companies within each category with all-male boards.

Across all public life sciences companies in California, this means that 126 women directors will need to be added to the boards of these companies by the end of calendar 2019. This total figure is broken down across the sub-category of companies, as shown in Fig. 4. Here again, we see that biotech therapeutics companies have the greatest task ahead of them with 73 women needing to be appointed, should the net size of the board of these companies remain constant and all current women directors remain in-situ. Perhaps one of the more important aspects of this requirement being met is that boards clearly do not operate in a vacuum. Directors resign, are asked to step down, retire, die, choose to reduce their board roster in favour of other roles, and depart for many other reasons – essentially it is a revolving door for men and women. In our study (A Public Reality for Women in Biotech Boardrooms) of 177 biotech companies that went public between 2012 and 2015, we showed a net increase of 15 women were added to these 177 boards over this time and up to 2016. The data published here just for California shows that five times as many women need to be added by the end of 2019. This underlines the magnitude of the task facing companies as they compete for women to serve on their board.

Fig. 4. The number of companies required to add one woman to their board by end of 2019.

Therefore, we can expect a near-term talent battle to insue as companies meet the 2019 requirement. To deliver upon the 2021 commitments, a veritable war will rage. To understand the implications of the law by 2021, we looked at the current companies, the composition of their boards, and the board sizes. From this, we were able to assess the deficit that each company faces were it to fix its board to the current size and not lose any of the current women serving. As it stands today, based on the current number of public companies, the total number of additional women required to serve on the boards of life sciences companies throughout the state of California would be 456 by 2021. The majority of these would be required by biotechnology therapeutics companies which require some 278 women to serve.  All of which needs to be achieved against a backdrop of life sciences companies from other states seeking to add directors; other sectors from within California and other regions hoovering up director talent to serve on their boards too; and many women reaching maximum capacity in terms of board roles.

Fig. 5. Number of women which need to be added to boards by end of 2021

To add further context to this, in every category of company except pharma, over 90% of companies would need to add women to their boards by 2021. This is not only an astonishing number, but it highlights the problem that this law was introduced to tackle.

Fig. 6. Percentage of companies needing to add women to their boards by end of 2021

While companies have made some effort to diversify their boards, the data show that far too few companies have anything approaching gender-balanced boards, and many have no gender diversity at all. It is little surprise then that regulatory intervention has been the result. Now it is over to companies to act.

 

Liftstream is a human capital services company delivering executive and board level searches to the life sciences sector, as well as advisory services to boards on governance and leadership. Our diversity and inclusion consulting service provides the required expertise to help companies transform their organisational culture. You can contact us to discuss your board and leadership requirements at info@liftstream.com. If you would like to discuss a free executive session on diversity and inclusion, please contact karl.simpson@liftstream.com. 

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