Lower female board presence could see a turnaround spurred by the financial crisis and a decrease in CEOs on boards
While the 2008 presidential race and subsequent election of Barack Obama has helped achieve unprecedented diversity at the highest levels of government, there is one area where the pace of reaching equality is positively glacial: board service in public companies.
According to the report ‘Planning for tomorrow’s boardroom: Making room for more women’ published by the InterOrganization Network (ION), an alliance of 12 women’s organizations in 13 US states, numbers of women on the boards of public corporations in the US show only modest gains. Further highlighting the slow growth, the report, which examined 1,336 companies, also finds that female representation on boards is limited to certain geographic areas.
A 2008 report by the Alliance for Board Diversity found, between 2004 and 2006 (the latest data available), ‘a virtual stagnation for women on corporate boards.’ Similarly, a study by the Financial Women’s Association, the FWA 100, found that the New York metropolitan area’s 100 largest public companies’ boards show a mere 1 percent increase in the number of women directors over the past year – 17.6 percent, or 194 seats out of 1,101, up from 16.6 percent, or 182 seats out of 1,096.
Progress, interrupted
Why the slow progress? ‘It’s a tough question to answer,’ says Rona Wells, president of ION. ‘There are a number of reasons why: Boards sometimes just don’t look for women. It depends on what they think is ‘qualified’. If they think you have to be a CEO of a Fortune 500 company to be qualified, then the pool isn’t all that big.’
Julia ‘Judi’ North, former president of the consumer division at BellSouth (now AT&T), is retired and currently serves on three boards: Acuity Brands, private hospital company Community Health Systems and nTelos. She is dismayed by the lack of progress, but also thinks that the changes in board service in recent years, including a shifting regulatory environment, may have something to do with it.
‘As women were starting to be recruited for board positions, there were a lot of new rules and regulations,’ she says. ‘I think that boards, maybe even more so than in the past, were looking for people who had previous public board experience because there’s probably more of a steep learning curve than there used to be.’
Kristin McDonough of the Financial Women’s Association says that many women executives who may be ‘board-ready’ are not given a chance at board service because many companies have traditionally allowed only their CEOs to take on outside board positions. ‘Even when we put forth the incontrovertible evidence that there is a strong correlation between board diversity and financial performance, the progress is slow,’ she says.
Toni Wolfman, a former president of ION who oversaw the study, adds that the director ‘comfort factor’ is also an obstacle to more women serving on boards. ‘It’s very strong and it’s a combination of aspects: the strength of informal social networks, the feeling that you want people just like yourself. You are generally more comfortable with people who look like you and think like you. Diversifying a board means moving a little bit out of your comfort zone and getting to know new people. A lot of people are just unwilling to do that.’
And then there are the ‘tired old excuses’, says Martha Goss, former chief financial officer of Booz Allen Hamilton and current board member of both American Water and Ocwen Financial Corporation. ‘The traditional opinion is that there aren’t that many women in senior ranks, and boards are looking for women with senior-level corporate, government or academic experience,’ she says. ‘Even in the current environment, people typically get on boards because someone knows someone.’
A deeper look at the dynamic reveals an unequal distribution. According to the latest GovernanceMetrics International (GMI) Rating Report’s board of directors summary, gender representation on boards differs by sector. For example, across the globe in the automobile and parts industry only 4.9 percent of directors serving on the average board are women, compared to 13.5 percent in retail. The average for all companies rated by GMI worldwide is 8.9 percent. There are also regional differences: In Japan, for example, less than 1 percent of public company board members are women, while in Scandinavian countries, which have the highest average representation by region, women make up 12.1 percent of boards in Denmark, 21 percent in Finland, 35.9 percent in Norway and 23 percent in Sweden.
Is there any reason for optimism?
Surprisingly, some experts think a positive aspect of the economic downturn is greater opportunities for women to serve on boards. As more companies limit CEO board service to keep them focused on their responsibilities, opportunities are opening up for other senior managers. According to executive search firm Spencer Stuart, the average number of outside boards on which active S&P 500 CEOs sit is less than one, half the average from 10 years ago. In 2007, active CEOs represented 33 percent of all new independent directors, down from 41 percent in 2002 and 53 percent in 2000. This also led to a rise in first-time directors: for the past two years Spencer Stuart found that one-third of new board members served for the first time. That dynamic, says Wolfman, may be more powerful than all the conventional wisdom about the power of board diversity.
In some regions, legislation is seen as the answer. In 2003, amendments to Norway’s Public Limited Companies Act provided for a minimum requirement for numbers of directors from each gender. Depending on the number of board members, that may range from 33 percent to 50 percent of the board, leading to a dramatic increase in the number of women on boards.
Wolfman also says that institutional investors will prompt change if they choose to adopt gender diversity as an issue that matters to them. They would be well advised to do so, she says, as women are making great strides in corporate risk management, a skill set becoming more respected and in demand as companies struggle with losses based on the gambles they have made.
‘Some institutional shareholders get it, and they certainly push for diversity,’ Wolfman notes. ‘But you don’t see this in shareholder resolutions, and you don’t see it yet, really, in ‘vote no’ [activist] campaigns.’ And while the focus will be on compensation issues in the immediate future, as companies come under increasing scrutiny for payment practices among their senior managers and leaders, Wolfman and others who are pushing for increased gender diversity will continue their drive to see more women around the directors’ table.
