Women have increasingly joined the boards of publicly listed companies in the US. But one-fourth of boards still did not have any women directors in 2012, Ernst & Young reported.
Companies with more women directors rank higher on performance measures, according to a 2012 report by the Committee for Economic Development (CED), a Washington, D.C.-based think tank whose members are senior corporate executives and university leaders. Companies with the highest percentage of women directors generated an average 9.1% return on investment between 2004 and 2008 compared with 7.2% among companies with the lowest percentage of women directors, one study showed.
“Boards that lack a breadth of diversity – across gender, ethnicity, age, geography and experience – and that are not challenging their composition … risk becoming underperforming boards,” the E&Y report states. “They may lack the diversity and dynamism required to compete in today’s global markets.”
Diverse skill sets, experiences and viewpoints are crucial for boards to master the rigorous oversight that regulators, investors and other stakeholders expect and to provide the strategic counsel that guides a company through volatile economic times, according to the report.
The percentage of board seats filled by women rose to 14%, from 11% in 2006, E&Y found among the companies listed on the Standard & Poor’s 1500 Composite Index. In 2012, three-fourths of S&P 1500 companies had at least one woman on the board (up from 65% in 2006), and 38% had two or more (up from 28% in 2006).
About 60% of the companies that already had one woman director in 2006 added at least one more by 2012. And more than 40% of all woman directors serve on each of the three key committees of the board. Forty-five per cent serve on the audit committee, 46% on the nominating committee and 41% on the compensation committee.
But E&Y also found that 62% of companies have not changed their number of women directors since 2006.
Efforts are under way to promote the diversity of corporate boards and the influence of women directors:
- Institutional investors have been pushing for greater diversity on boards through shareholder proposals and letter-writing campaigns and by presenting women candidates for consideration.
- The European Commission has proposed legislation that targets having 40% non-executive women directors on the boards of large publicly traded companies by 2020.
- Boards that are recruiting women executives to join are not limiting themselves to sitting chief executives. Of the 63% of recruits that are public company executives, 40% headed a subsidiary or business unit and 16% are CFOs. The top three qualifications companies cited are executive leadership, industry expertise and financial/accounting.
The CED suggested companies that want more women representation on their boards work out a strategy that includes measurable goals and accountability tied to performance pay.
Recommendations in the CED report promoted efforts by a company to attract, retain and develop the highest-performing women.
To build and expand the pipeline of potential board candidates, for example, the CED suggested companies train recruiters and operations managers on the importance of diversity and enhance the effectiveness of mentoring programmes by rethinking human resources policies that eliminate women who temporarily left the workforce and are older. Also, companies could offer employees a more flexible work environment to prevent more women from making career choices that lead them off the path to leadership positions.
Related CGMA Magazine content:
“How to Make a Corporate Board More Effective”: Corporate governance is in the spotlight as never before, but most boards are not as effective as they should be. A new CGMA report offers recommendations and tools to help improve board performance.
“Nine Steps for Effective Risk Oversight by Corporate Boards”: Corporate boards can better prepare for their role in enterprise risk management oversight with a framework aimed specifically at them. A framework produced by the Canadian Institute of Chartered Accountants describes a nine-step process for effective board oversight.
“Gender Inequality Stymies GDP Growth, Study Finds”: The study, which analysed data from 128 countries, quantifies the costs of gender inequality to a country’s economy and scores countries based on the effectiveness of their efforts to empower women.
—Sabine Vollmer (firstname.lastname@example.org) is a CGMA Magazine senior editor.