How Standards for Gender Diversity on Corporate Boards Are Evolving
As technology has brought increased awareness of individuals and their public identities and reputations, it has also brought greater access and understanding of the interworking of organizations and the people that run them. Perceptions of corporate boards as “Oz” like institutions have dissipated, and people have come to understand that board members are people with individual characteristics and defining qualities.
The traditional homogeneity of corporate boards faces increasing criticism. A corporate board not only has an identity as a whole of being a governing/supervisory body, but now also reflects the composite of the identities of the individuals serving as board members. Members of the public who are customers, clients, and stakeholders of these organizations expect boards to be conscious of their total and individual identities and regularly evaluate and make concerted efforts for self-improvement.
Over the past decade, the pressure to increase female representation on boards has continued to mount. Approaches to effectuating this change vary. Some countries regulate the minimum percentages of female board members.
- Norway was the first country to pass a female board member quota law requiring all public limited liability companies to have at least 40% women on the board or risk dissolution.
- Similarly, Spain, France, Finland, and Iceland set their minimums quotas of female board members at 40%. Denmark also requires a 40% minimum, but does not attach sanctions to the requirement.
- Italy, Belgium, the Netherlands, Malaysia, and most recently Germany all require 30% or more female representation. Sweden and the United Kingdom do not have binding minimums, but set goals to increase female participation.
- The United States has a minimally instructive rule for gender diversity on boards through the Securities and Exchange Commission, which requires boards to disclose how they consider diversity when choosing board members.
- European nations lead gender parity rankings with all of the aforementioned EU nations having well above 20% and some reaching 40% of board seats held by women. Growth in the United States has been significantly slower, with only about 10.7% female representation on boards of 6,920 companies according to Catalyst (a nonprofit research firm studying women in business), but with about 19.2% percent of women on the boards of S&P 500 companies.
Quotas are effective in increasing the number of women on boards according to Dan Konigsburg, Deloite Global managing director in “Deloitte’s Women in the Boardroom: A Global Perspective”; however, they are subject to criticism and raise questions regarding the qualifications of women being elected to some boards, especially those in male-dominated industries.
The idea that there are not a sufficient number of qualified women to serve on boards has been rebuked on a number of fronts. Instead, the quotas and policies behind them and thought leadership influencing this change increasing female presence on boards challenge a long-standing, unsavory status quo and open networks of highly qualified women to join the ranks of their male counterparts on boards.
- In surveyed directors, over 95% viewed diversity as at least a “somewhat” important director attribute, but 70% of directors also believe there are impediments to increasing board diversity.
- Interestingly, PWC discovered that over 67% of mega-cap company directors think diversity is “very important” to board composition, contrasted with only 31% of directors at micro-cap companies granting diversity that same ranking, which raises questions about smaller companies’ recognition of the benefit of increased diversity.
- Further, a vast majority of directors (over 80%) believe diversity enhances board effectiveness and company performance.
Recent research shows that companies are more profitable and have higher market performance when women are on boards. An article in the Academy of Management Journal featured the results of such research combining results from 140 studies, which highlighted better prerformance based on an internal view on asset utilization and income generation and on an external view on perceptions and stock performance when women are on boards. The differing experiences, backgrounds, and communication and interaction styles of women enhance all functions of boards through more productive and effective deliberation and keener oversight from a broader viewpoint and expertise.
“The idea is that when a group is held to a higher standard of accountability, it will draw on the knowledge of everyone in that group, leading to better decision making” said Corienne Post, PhD., a professor at Lehigh University and author of the article. This negates traditionally held notions that there exists a largely unsuitable pool of diverse candidates and instead points to either a board’s inability or unwillingness to recognize a major weakness, which can be easily remedied through board evaluations. It may require thinking outside of the restrictive traditional confines of director eligibility and recruitment pools to ensure boards are properly constituted with appropriate gender representation.
The ideals of increased accountability and efficacy of boards are at the basis of the continued efforts to increase gender parity on boards. Boards are required to be cognizant of diversity matters and reputation based thereupon in order to remain competitive. Through proper board and peer evaluations, boards can assess strengths and weaknesses of the board as a whole and of each individual director to determine the number and expertise of female directors necessary to enhance their ability to properly govern and lead their organizations to higher successes.
Just as you would not stock your football starting line-up with all kickers, the notion of boards continuing to be comprised of all or an overwhelming majority of men is similarly absurd.