The Compelling Case for Diversity on Boards of Directors
September 10, 2013 Pearson’s Esteemed Panelists Q3 2013
- Julie England, Board Member, Checkpoint Systems; Board Member, Intelleflex; Board Member, Georgia O’Keeffe Museum
- Renee Hornbaker, CFO, Stream Energy; Director, Eastman Chemical; North Texas Chapter President, National Association of Corporate Directors
- Yon Jorden, Board Member and Chair of Governance Committee, Maxwell Technologies; Board Member, Methodist Health System; Former Board Member and Chair of Audit Committee, Magnetek; Former Board Member and Chair of Audit Committee, US Oncology
- Whitney Johns Martin, Co-founder, Co-chair and Managing Director, Texas Women Ventures
The Value of Diversity
A recent Thomson Reuters study, “Mining the Metrics of Board Diversity,” revealed that of a sample of 4,100 companies worldwide, 59 percent had at least one woman on their board, and only 17 percent reported that their board was 20 percent female. It’s even worse in Texas, according to a recent study by The Board Connection, with only 10 percent of Texas Fortune 1000 companies having women on their boards. Those figures are only slightly more encouraging in Dallas, at 13 percent. Although adoption of policies and processes promoting gender diversity has been increasing, these data reveal how few corporate boards are truly gender diverse.
Meanwhile, the study, along with numerous others, showed that companies with women on their boards tend to outperform those without. So correlated is this increase in performance that the consulting firm Deloitte refers to as the Gender Dividend. Some sectors—including technology, industrials and consumer goods and services—are leading the way in board diversity. Since women make up over 70 percent of the global consumer base, it seems apparent that gender diversity on boards is key to driving profitability.
Like their male counterparts, women are often recruited to board positions by way of their industry connections. But, it’s important for companies to be sure they are recruiting diverse board members for the right reasons: not simply because a candidate is diverse, but because that individual’s skills, experiences and perspective fill a void in the organization’s leadership. By the same token, candidates who are invited to serve on a board should perform their own due diligence to ensure a good fit, such as by meeting with the company’s leaders as well as other board members.
As Bob Pearson pointed out in a Searchlight article on this topic back in 2009, some companies say that while they want women on their boards, C-level female executives can be hard to find. While that is less true today, there remains a dearth of women in the highest ranks in the Fortune 1000. In those cases, he suggested looking outside the C-suite, and recruiting female board members from the ranks of senior management—especially where specific functional expertise is required such as HR—and also in the not-for-profit, government and public sectors.
Ensuring Diverse Contributions
Promoting board diversity takes a concerted effort, as seats may not become available very often. Some companies employ board term limits as opportunities to increase a board’s diversity, replacing board members every few years in hopes of gaining fresh insight. Yet, some argue that these limits are actually damaging because it can take years for a director to learn enough about a company’s operations to become a truly effective contributor, and good directors are often termed out too soon.
To maximize the value of a diverse board, it’s important to get female board members actively contributing to the board as quickly as possible. Because many boards only meet a few times each year, some companies have established programs for one-on-one board member education about operations and finances, bringing together new board members with functional leaders throughout the organization.
Even with the right onboarding program, it can be difficult to make a mark as a new board member—and that’s especially true for women who are joining a traditionally male board. Recognizing this, some female board members take the initiative to invest extra time and effort into building relationships throughout the company and on the board. For example, by initiating visits with the company’s executives and facilities, a new board member can grow her understanding of the company while demonstrating the value that she brings to the table. During this learning period, listening is important, but only by speaking up can a new board member establish credibility, break through a board’s existing groupthink mentality and exemplify the value of diverse viewpoints.
Countries like France, the UK, Sweden and Australia are making great strides in promoting gender diversity on boards, in some cases driven by legislation. Some countries are easing into it with “comply or explain” regulation, imposing a soft quota for women on boards (such as 40 percent in France for companies over 500 employees), while requiring those who don’t meet the quota to explain in their annual reports. Others are finding more success in voluntary initiatives (such as the 30% Club in the UK). Many companies in the Americas are grappling with whether such quotas are effective. At Pearson Partners, we advise our clients that mandates and quotas aren’t effective, and they can create disharmony in the team effecting board dynamics. We would prefer seeing board gender diversity as an organic movement. Furthermore, we believe the market is a more effective force, largely by encouraging investment in companies with board diversity because of their superior performance—i.e. the Gender Dividend.
Looking to the future, a common theme resonated among our panelists: Companies worldwide are increasingly realizing the benefits of diverse perspectives on boards, and the availability of board seats for women is rapidly growing. Female executives should be making preparations now by building their skill sets, expanding their professional networks and becoming board-ready to seize these opportunities.