Whether you are running a private equity, venture or hedge fund, you have to think about corporate boards. For some funds, the board is part of the valuation process, while for others the board is where managers place themselves or their staff; and for activist funds, board seats often how investors make their impact. If they haven’t already, these managers may want to start considering a new factor in their board evaluations: gender. With Governor Cuomo signing off on a study of board diversity in New York corporations, the Empire State may soon follow California in legislating director diversity.

While there has been plenty of talk (and data) about the value of diversity on corporate boards and in the executive suite, those conversations and studies have manifested few results. Despite representing a majority of the population, women occupy just over 25% of positions on S&P 500 boards. And only six of those 500 companies are overseen by a majority-female board. The balance at private companies, where director composition sees much less daylight, is likely even worse.

So far, California is the only state that has taken a legislative approach to addressing this situation. In 2018, the California Legislature passed, and Governor Jerry Brown signed, a law mandating that all public companies run out of California have at least one woman on their board of directors. That number jumps to three in 2021. New Jersey has a similar bill that has been sitting in committee since early 2019, and New York may soon follow. At the end of 2019, Governor Cuomo signed legislation that requires the New York Department of State and the Department of Taxation and Finance to study gender diversity on the boards of directors of all corporations authorized to do business in New York. Given the data that is already out there on this subject, the findings of this study, due in early 2022, are unlikely to surprise.

Why is this important to fund managers in particular? Because, one way or another, boards play critical roles in their businesses. Looking at private equity and venture funds in particular, their investments are often coupled with board positions – positions that are frequently filled from within the fund. Given the lack of diversity at the fund level (only 10% of senior investment professionals in private equity and venture are women), some managers may be challenged by requirements to fill board seats with diverse candidates. Perhaps this anticipated legislation will motivate managers to look at diversity in their own shops. And if they don’t, that will be yet another argument in favor of supporting diverse asset managers.