How diverse is your board?

Around half the US workforce is female, and their wages are rising. Yet the number of women serving on the boards of US companies remains comparatively small. With few exceptions, corporate boards are composed primarily of white males. 

Diversity is the buzzword of the day but, according to a 2004 study of the Fortune Global 200 conducted by Corporate Women Directors International (CWDI), the idea is taking some time to flow through to board level. Of 78 US companies in the index, women account for just 17.5 percent of all board seat holders. 

This compares with 10.4 percent for the entire index. That paints only half the picture, however. Of the 200 boards surveyed, three quarters have at least one female director and, of those, almost 55 percent have more than one. 

Skeptics, however, say, ‘So what?’ After all, it’s not about gender, it’s about corporate performance, isn’t it? And of course it’s about performance – which is precisely why diversity is important. Recent studies by the Cranfield School of Management in the UK and the Conference Board of Canada show a link between board diversity (including gender diversity) and good corporate governance. 

Other studies, including one by Catalyst, a research and advisory organization working with business to advance women, suggest companies with diverse boards show better corporate performance. This is not surprising, says Deborah Soon, vice president of executive leadership initiatives at Catalyst. 

‘There is plenty of evidence that diversification of perspective improves decision-making,’ she explains. ‘If you think of a corporate board as an independent creative body acting in support of the management team, diversification of thought is an important component not only of independence, but also of the company’s well-being. A myopic board – the ‘old boys’ network’ – is often not an ideal environment to breed creative thinking.’

Diversity and performance

Women bring a diversity of thinking to the corporate table, says Judy Rosener, a management professor at the University of California, Irvine. ‘Not only does the presence of women on a board frequently result in the removal of sexist language and jokes, but it also results in a broadening of the issues being discussed,’ Rosener points out. ‘Women ask different kinds of questions and they tend to be very concerned about ethical issues. This is not to say that men are unethical, but women are more likely to ask, Are you sure this is what we should be doing?’ 

Rosener also notes that ‘because women are generally ‘outsiders’ anyway they are often willing to ask what might be considered more difficult or sensitive questions, and to admit they don’t know [about certain issues] and therefore need more information. This is very important. The raising of these questions often results in better corporate governance.’ 

Some investors insist that the boards of the companies they invest in are diversified. Calvert Group, an investment company specializing in socially responsible investment (SRI), is one such investor. Last year, Calvert contacted 154 companies in its portfolio that have no female or minority directors, asking them to diversify their boards. Within a few months a third of them added at least one female or minority director to their board. 

Diane White, a diversity consultant for the Calvert Group, believes there has never been a better opportunity to diversify boards, because the Sarbanes-Oxley requirement for independent directors means there is a higher turnover of directors at present, providing a chance to introduce fresh blood. ‘We have always thought it important to have different viewpoints and experiences on the board,’ explains White. 

Irene Natividad, president of CWDI, echoes this sentiment. She cites the example of Albertsons, a US food and drug store chain, and the only US company in the Fortune Global 200 that has a majority female board. ‘The CEO of Albertsons made a direct correlation between diversity and the bottom line: 85 percent of the company’s customers are women, so why not have a majority female board?’ Natividad comments. 

Julie Hill, former president/CEO of Hiram-Hill Development, is a member of three boards including WellPoint and Resources Connection. She feels women bring a more personal and intuitive aspect to board level decision-making, something that may be lacking in all male boards. 

Hill was brought to WellPoint, where a third of the directors are women, by Korn/Ferry. Her newest directorship, at Lord Abbett Distributor LLC, was suggested to the search firm Spencer Stuart by a fellow director at WellPoint. ‘By doing good work on the first board, you may be recommended to another,’ Hill points out. ‘It is a good way for women to continue to increase their numbers on boards.’ 

Getting on board

Relying solely on personal recommendations from existing directors can lead to its own problems, though, and is one of the major criticisms leveled at the so-called old boys’ network. This is why nominating committees charged with finding new directors are increasingly turning to third parties, explains Julie Daum, head of board search practice at Spencer Stuart. Diversity figures prominently in the brief she gets from clients. 

‘We are definitely seeing more companies looking for female directors. We have just done a survey of S&P 500 companies and, in 2004, almost a quarter (24 percent) of all new directors were women,’ Daum reports. ‘Significantly, it was 18 percent in 2003 and only 12 percent the year before. It’s not that companies specifically look for women – they still look for the best candidates. But these days my client would tell me, for example, I need a marketing executive and, all things being equal, I would love to have another woman on the board.’ 

This is where corporate secretaries come into play, says Tina Van Dam, corporate secretary at Dow Chemical, which has had women directors for a long time. ‘We never specifically tell headhunters, Please get us a woman, but we do ask them to present us with a diversified list of candidates,’ she observes. ‘At Dow there is a board nominating committee with responsibility for finding new directors, but we can help our boards by identifying strong candidates from diverse backgrounds. And once they are elected, it is our job to implement a good education program to help them serve and achieve individual fulfillment within the board.’ 

While representation of female board members at many large US firms remains disproportionate to their position in the economy and society, there has been an increase in recent years. It seems the acceptance of females as board members, both executive and outside, is slowly increasing – but not as swiftly as perhaps it should be.