A Woman's Place in the Boardroom

Posted on Wednesday, February 22, 2012

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by Holly Testa, AIF®
Business Development Consultant

A growing body of evidence strongly suggests that companies with women serving on their boards
of directors and in senior management positions outperform those that do not. Socially conscious investors may be particularly interested in the fact that observed outperformance goes beyond financial indicators. Increased representation of women on boards appears to strengthen corporate social responsibility records, improve integration into the communities where the companies operate, and put
a stronger focus on long-term sustainability issues.

Does Gender Influence Corporate Social Responsibility?

A recent study, Gender and Corporate Social Responsibility: It's a Matter of Sustainability, from Catalyst and Harvard Business School found that companies with more women serving on their boards and more women among the ranks of corporate officers contribute significantly more charitable funds than companies with fewer or no women in senior roles. The report unveiled some compelling statistics:

  • Average donations of companies with three or more women directors were 28 times higher than those of companies with no women directors.
  • Companies with 25% or more women corporate officers as of 2007 made annual contributions that were 13 times higher than those made by companies with no women corporate officers.

A cynic might say that higher charitable giving has a negative impact on the bottom line; after all, the money given away represents a cost to the company. But could it be that women are better able recognize the value of targeted philanthropy? Corporate philanthropy is a cornerstone of corporate social responsibility-women may help companies tap into the benefits of integrating responsible philanthropy into their business models.

By the Numbers

A report by Catalyst, The Bottom Line: Corporate Performance and Women's Representation on Boards, indicates that Fortune 500 companies with the highest representation of women board members attained significantly higher financial performance, on average, than those with the lowest. The study also revealed stronger-than-average performance at companies with at least three women board directors on three key indicators. Companies with the highest percentage of women on boards of directors exceeded average return on equity by at least 53%, return on sales by at least 42%, and return on invested capital by at least 66%.

The Power of Three

Why three? A study at the School of Business University of Western Ontario and Wellesley Centers for Women, indicates that with three women directors, a "tipping point" is reached causing a fundamental change in the boardroom that enhances corporate governance.

International consulting firm McKinsey & Co. produced a series of studies, Women Matter, showing similar results for top management positions. Companies with three or more women in top-management positions achieve higher scores for each of nine criteria of organizational effectiveness (including leadership, work environment and values, and accountability) than companies with no women at the top. Additional comments from these studies shed some light on the power of three:

  • Beyond tokenism: The more women on a board, the more likely the individual voices of each woman will be heard. One woman is likely to be regarded as a "token" with minimal voice in the decision-making process.
  • Stakeholder representation: With three women on the board, the content of boardroom discussion is more likely to include the perspectives of the multiple stakeholders who affect and are affected by company performance.
  • Diversity of thought: Women on boards bring different perspectives to the difficult issues facing today's corporations. Diversity of thought promotes better decision making and could result in substantial competitive advantage.

A Missed Opportunity

Women are woefully underrepresented in corporate boardrooms worldwide. Governance Metrics Inc. (GMI) found in their 2011 Corporate Boards Report that of the 4,200 companies covered worldwide by GMI, the aggregate percentage of board seats held by women was only 9.8% as of 2011. More than 40% of the world's 4,200 largest companies have no female members. Only one company has appointed a majority female board.

In the United States, the aggregate percentage of female directors is just over 12%. SEC governance rules now require disclosure of how nominating committees consider diversity in identifying board nominees. Several European nations are attempting to address the issue by implementing quotas. This approach does not appear to be on the table in the United States.

Even the most progressive of companies seldom have three or more women board members. But as evidence continues to mount in support of the observation that gender diversity in boardrooms and executive suites can produce better outcomes for companies, shareowners, and communities, companies seeking to outperform their competitors need to re-evaluate how they choose board members and why. And shareowners should push for substantial improvements in diversity.

Moving from Agreement to Action

Given the competitive edge that gender diversity seems to offer, why aren't more companies scrambling to increase the ranks of women in senior management and on their boards?

According to McKinsey & Co.'s follow-up study, Women Matter, 2010, the majority of company leaders surveyed recognize the positive impact gender diversity has on company performance, but this recognition has not led to effective action. Gender diversity is a top ten priority for less than one third of companies, and for another third of companies gender diversity does not even make the priority list.

Companies that set gender diversity as a priority are far more likely to have programs in place to help women advance within the organization and to have more women promoted to senior positions.

McKinsey and Co. has identified 13 gender diversity measures that have been implemented in corporations. Of these, four measures were found to be most effective in increasing women's representation at the top:

  • Visible support and monitoring by the CEO and the executive team of the progress in genderGirl Power
  • diversity programs
  • Skill building programs developed exclusively for women
  • Encouragement or mandates for senior executives to mentor junior women
  • Policies that encourage work/life balance

Overcoming "Double Burden" Syndrome

A Harvard Business Review survey indicates that women who do climb to the upper echelons of management pay a higher price than men for success. One key issue that constrains women in the current business model is sacrificing parenthood in exchange for career success. In the 41-45 age range, 49 percent of the best paid women (defined as salaries over $100,000) were childless, versus 19 percent for men.

Surveys of women executives conducted by McKinsey & Co. over four years indicate that the combination of work and domestic responsibilities (which still fall primarily on women) make it difficult to succeed within the predominant corporate model.

This model demands complete availability all of the time and requires the ability to transfer and travel
relatively frequently. It's an "anytime, anywhere" model. In order to achieve gender diversity at the top levels of companies, flexible working conditions and performance evaluation systems that neutralize the impact of parental leaves are essential to retaining and promoting talented female employees.

Shifting the Focus for Lasting Change

Programs launched to promote gender equality in the workplace focus primarily on how to enable women to thrive in the prevailing (male dominated) business model, rather than changing the business model itself. The result has been that the few women who make it to the top often do so by adopting the characteristics that are successful in this masculine environment.

This approach limits the effectiveness of current efforts and fails to take into account how the prevailing
business culture prevents companies from maximizing their potential-most are missing out on harnessing the unique perspectives brought by women. This model fails all of society, not just women.

Catalyst's research initiative, Engaging Men in Gender Initiatives: What Change Agents Need to Know provides a blueprint for the future by advocating policies that could lead to lasting positive change for both men and women.

According to the authors, "Since much of the discourse on gender has focused on women's experiences, relatively little attention has been paid either to defining masculine norms or their impact in the workplace. This imbalance is regrettable, because how men negotiate masculine norms is a key determinant of whether they support or resist efforts to close gender gaps in the workplace."

Four masculine norms identified as prevalent in North American and European business models include…
- "avoid all things feminine,"
- "be a winner,"
- "show no chinks in the armor," and
- "be a man's man."

Conformity to these norms can be critically important, and the consequences for violating norms can be
high, leading to a loss of status that dramatically impacts career opportunities. Research shows that
men experience social penalties which are often harsher than those women face when they deviate from their gender "scripts."

Catalyst's research indicates that there are three characteristics that predict men's awareness of
gender bias: defiance of masculine norms, having women mentors, and a strong sense of fair play.
Survey respondents with high awareness of gender bias identify it is a significant competitive
disadvantage for corporations.

Redefining "Qualified"

The cards are stacked heavily in favor of men in part by simple virtue of the fact that most directors and C-level* executives are men. A traditional, predominant measure used to qualify a board candidate is being in the C-level ranks, which places an automatic constraint on increasing the number of women on boards. Many companies will need to change their board criteria and search process in order to create boards that capitalize on the competitive advantages of diversity.

Many women's business organizations across the country perform board searches. Universities, Blue Green Yin Yangincluding Stanford and Harvard have women's leadership programs that can help identify qualified individuals from their alumni. Business and trade associations can also be a good resource for finding senior-level women from different business sectors.

Creating Opportunities for Change

Several institutional investment firms and nonprofit organizations are pushing for much-needed changes in board composition through activism and education.

Calvert Investments has been at the forefront of advocating gender diversity through intense shareowner activism efforts and through their establishment of the

Calvert Women's Principles. The principles "provide companies a set of goals they can aspire to and measure their progress against, while offering investors a set of tools they can use to assess corporate performance on gender equality issues."

PAX World, who started the first socially responsible mutual fund in 1971, launched the Say No to All Male Boards Campaign. This campaign urges institutional investors, investment advisors and individuals to adopt proxy voting that oppose all slates of director nominees that do not include women. While many socially responsible investment management firms, including First Affirmative, have proxy voting policies in place that vote against boards that lack diversity, many "mainstream" investment firms routinely vote in favor of the all-often all white-male slate of directors presented by the company.

2020 Women on Boards is a national campaign to First Affirmative Financial Network increase the percentage of women on U.S. company boards to 20% or greater by the year 2020. On January
20, Women on Boards launched a database, the 2020 Gender Diversity Directory, which evaluates companies by the percentage of women on their boards. This will be a valuable tool for investors to evaluate a company's diversity profile.

Women Corporate Directors (WCD), a national membership organization supporting women board
members, sponsors a "Call to Action" program advocating board diversity and excellence in
corporate governance.

Finding the Perfect Balance

Robin Ely points out in her research that "The problem lies not in traditionally masculine attributes per
se-many tasks require aggressiveness, strength, or emotional detachment-but in men's efforts to prove themselves on these dimensions, whether in the hazardous setting of an offshore oil platform or in the posh, protected surroundings of the executive suite. By creating conditions that focus people on the real requirements of the job, rather than on stereotypical images believed to equate with competence, organizations can free employees to do their best work."

Men and women both have something to gain by bringing more "feminine" characteristics into an
organization. Both men and women need to be empowered to think outside of the box that societal
norms impose so that the corporate model can evolve to the benefit of all stakeholders.

* C-level: A term used to describe high-ranking executives (e.g. CEO, CFO, CIO, etc.)