Empirical Evidence on Impact of CA SB826: Gender Quotas for Boards of Directors
professorbainbridge.com
professorbainbridge.com
Market dictates to maximize shareholder value you need optimal board members x,y,z. A law like this makes you replace z with e.
It's not that a woman can't do the job, but instead that the supply of women capable is much lower. As a result, with a shortage and a mandate for women board members some companies will get sub-optimal picks which result in sub-optimal results.
What will probably happen is that there will be some improvement (possibly crossing into the positive) once the women get more experience. The nature of the problem (and timescale of the solution) demanded an influx of inexperienced board members which should smooth out over time.
My not entirely thought out belief is that if the issue is interest, we would expect to see less of a performance drop than if the interest was ability [0].
Actually, if performance continues to degrade, that would likely just be a sign that whatever negative effect is being observed takes more than ~3 months to fully materialize.
[0] Although, even thinking about this for a moment, I can envision a bunch of situations where this would invert.
Having said that, I think the much more informative way of looking at this is as if it was the result of an experiment. If your hypothesis is that the previous inbalance was due to bias in hiring boards of directors, then you would expect shareholder value to increase when that bias is countered (thereby moving towards more optimal behavior). Those of us who have been arguing that that hypothesis would be extraordinary if true are gratified that the evidence does not seem to support it [0].
Now, returning to the original law, what is our justification for it? There seems to be no evidence of an economic justification, and (as I mentioned above) claims that it is to counter a direct bias also appears to be contradicted by the evidence.
The only "reasonable" justification I can see is that it is an attempt at social engineering. In my judgement, it is a very crude and ill considered attempt. Additionally, it is an attempt that necessitates dismantlementing many of the legal protections that its proponents [1] fought so hard for.
The unreasonable justification (which is the one I actually think to be most accurate), is that law is an attempt to garner support from a political base by politicians who have realized that effective governing is bad politics. [2]
[0] Of course, there are still plenty of explanations for that hypothesis which is consistent with the reported data. For instance "shareholder value" is not an entirely objective quantity. "Shareholder value" also does not claim to be a complete measure of economic health.
EDIT: Perhaps more damning for looking at this as an experiment is how far beyond the margins it went. Maybe a forced 10% increase in women board members would have been imidietly beneficial and the results we are seeing here are from overcorrecting against the bias. Or maybe the results are from the sudden change in board makeup irrespective of the quality at either end of the change; or from the influx of less experienced board members (if there were enough experienced women, there would have been no need for this law); or from the disproportionate stupidity of applying such a strict quota on groups as small as boards of directors.
As it turns out, not only are these bad properties for experiments to have; they are bad properties for public policy as well.
[1] Broadly considered as the social movements behind them. At the individual level, many of the individuals in said movements are from a new generation who were not part of the fight for said rights.
[2] A more scary variant of this is that that nature of our politics is such that it selects for people who believe this is what good governing looks like. There is probably more truth to this than I would like to admit; but until I am force not to, I am going to keep believing that our lawmakers secretly know what they are doing.
Like joint tax returns, mortgage deductions, tax exemption for churches, child tax credits, and narrow definitions of marriage?
However, the prejoritive I attempted to convey was not actually that it is social engineering, but rather that it is a "crude and ill considered attempt [at social engineering]".
Notice that all of your other examples are taxes, which are a well established and effective mechanism for social engineering. I would probably still disagree with it, but I would not be calling the policy stupid if it was a subsidy for women in boards of directors, instead of being an unfunded mandate.
[0] Actually, I would say the entire legal institution of marriage is, but I digress.
For incentive vs mandate, much of the country has restrictions on alcohol sales. Often just on Sunday, obviously an attempt to encourage a particular religious practice. Some limit sales to government run companies. These are not incentive systems but direct prohibition. Yet there is no huge outcry of "social engineering" or "socialism" from those who condemn other policies with those terms, instead theses practices are frequently defended as "traditional values" or "community values".
For California, an incentive system might have been better received or perhaps more efficient, if slower, toward reform. But in practice, a tax cut is a tax increase to those who don't get it but must pick up the revenue slack. For example, if we look at it honestly, the mortgage deduction is little more than a transfer of wealth from the poor to the middle class.
It's worth noting the study cited, taken in narrow time window, reporting effects on the level of 1.5% during a period of large market fluctuations, should probably be taken with a grain of salt. And even if accurate, could be due to things such as uncertainty caused by any shuffle of board members regardless of gender. But even if their cause is correct, the California public seems willing to endure a small short term loss to share holders if the result is a disruption to discrimination networks both known and unknown. It is also reasonable to believe that when irrelevant barriers to promotion (including gender) are reduced, over all efficiency will increase with the larger pool of candidates. And that this will take more than three months. Judging from California's overall prosperity, their often criticized techniques do seem to work well even if measured just solely on wealth.
Also, this is a question will well understood theoretical backing. If you consider the entire law as an experiment, it is probably best to view this as a preliminary report, not a final result. Similarly to how no one thinks twice when CERN gets excited about a bump in their data, only to find out later that it turned out to be a statistical fluke.