Women in the boardroom

Women may have won the right to vote, make up a significant proportion of the workforce, and be making good progress towards equal pay in many countries, but in the majority of organisations, the boardroom remains a resolutely female-free zone


Take the UK, for example. “Only 12.5 percent of FTSE 100 directorships are held by women,” says Susan Vinnicombe, professor of organisational behaviour and diversity management at Cranfield School of Management and co-author of the school’s annual Female FTSE Board Report. Of the 1,076 directorships in FTSE 100 firms, executive and non-executive, 941 are held by men, with just 135 directorships held by 116 women. Elsewhere, in the top 101 companies in the US, Europe, and Asia, the proportion of women on the executive committee is just 15 percent, seven percent, and three percent respectively.

Momentum is gathering behind a move to increase the number of women in executive and non-executive directorships. Initially driven by the inequities of the existing situation, more recently it has become clear that there is a strong business case to be made for greater gender diversity at senior levels.

To begin with, research suggests that companies with more women on the board are likely to outperform other firms. In The Bottom Line: Corporate Performance and Women’s Representation on Boards, published by non-profit membership organisation Catalyst in 2007, Fortune 500 companies with more women on the boards outperformed those with the least, by 42 percent on return on sales, 53 percent on return on equity and 66 percent on return on invested capital.

Greater female representation on boards is also associated with improved performance on governance. Research by academics Renée Adams and Daniel Ferreira, Women in the Boardroom and their Impact on Governance and Performance, revealed that boards with more female directors were characterised by greater meeting attendance, tougher monitoring of the CEO, and better alignment with the shareholders’ interests. There are also studies that suggest that having more women on the board lessens the risk of bankruptcy.

There are other powerful business related arguments too. In a world where human capital is a prized asset, and talent driven innovation feeds into competitive advantage, it makes no sense to overlook such a large and talented proportion of the workforce.

“Against a backdrop that 60 percent of graduates in the developed world are women, and that there are a substantial number of women in the corporate talent pipeline, it is clearly a waste of talent not appointing women to the board,” says Ms Vinnecombe. “There’s a market argument too. For example, around 80 percent of key consumer decisions in the UK are made by women. Doesn’t it seem ridiculous not to have customers’ views expressed at the top of the organisation?”

And increasingly investors are looking at a number of aspects of company performance, she says, including gender diversity on the board. Plus there is some evidence to suggest that women tend to have a transformational leadership style that may be linked to greater effectiveness.

A number of countries have taken action to redress gender imbalance in the boardroom, usually in the form of mandatory quotas or self-regulatory targets with guidelines.

Countries in the non-quotas camp include Australia, Austria, Denmark, Germany, the UK and the US. These countries tend to have a report and explain, code-based rules approach. In the UK, for example, Women on Boards, the recent government-backed report by Lord Davies of Abersoch, recommended that FTSE 350 companies set out the percentage of women they aim to have on their boards in 2013 and 2015, and FTSE 100 companies aim for 25 percent female representation by 2015.

Quoted companies, the report said, should disclose the proportion of women on the board, in senior executive positions, and in the whole organisation. UK Governance Code will be amended by the Financial Reporting Council, with listed companies having to establish a policy on boardroom diversity and disclose performance on that policy.

Other countries have taken a tougher stance. In 2006, Norway legislated for a quota system. Private listed companies had to have 40 percent board representation of women by January 2009 or face penalties. Spain and Iceland have introduced quotas. France is considering doing so.

There is still a prevailing opinion in business, however, that board composition is something that should be decided by the individual company and its shareholders, without recourse to legislation. But if firms do not make more progress, government imposition is likely. So what can be done to ease the transition of women into senior executive and board positions? Experts offer a number of suggestions.

For a start, provide support. Nina Solli is responsible for diversity at the Confederation of Norwegian Enterprise (NHO), and was instrumental in creating Female Future, a programme designed to support getting more women into management positions and on boards. “We asked companies to sign a binding agreement with measurable goals – for example, that within a two year period they were to get two more women in management positions or on the board of directors.”

As part of the programme, women identified by participating firms as having senior management or board director potential take an examined course on board competence, undergo personal leadership training, and work on presentational and networking skills in preparation for the step up in responsibilities. “Some 60 percent of participants – out of 1,251 women participants so far – have either been offered a board position, or advanced in their career as a manager,” she says.

Chris Parke, managing director of Talking Talent, works with a range of well-known organisations, including many financial services firms, helping them retain female talent. He stresses the need to tackle some less visible barriers to progress. “Looking at organisations you might see that on performance management, women get slightly lower scores than men, or on shortlists for succession plans and promotions women often get overlooked, for example. It is often these subtle, unconscious barriers – a series of micro inequities – that need addressing.”

It is also essential to challenge management and get senior leadership buy-in. “The role of the chief executive in taking on a personal commitment to do something about this issue and not just paying lip service through a few HR KPIs is critical,” says Penny de Valk, chief executive at the Institute of Leadership and Management, which recently published Ambition and Gender at Work, a report examining the reasons for women’s lack of career advancement and possible remedies.

“Plus you need to test the board’s understanding of why this is a business issue to make sure that any intervention or investment in gender diversity is driven from an understanding that inclusivity in the organisation is good for business.”

And organisations must ensure external executive search firms are aligned with internal ambitions to build a diverse board. “When a nominations committee looks for a non-executive director they should encourage the search firm to include a diverse population,” says Dona Roche-Tarry, managing partner of European board services at global executive search firm CTPartners.

“Because some just look for specific skill sets, and that’s often where you find the challenge for women. The nominations committee needs to consider people that have strong operating experience. There are many women in the UK and globally, who, while not currently sitting on the board as an NED for a FTSE 100 or privately held £100m business, are in very significant management or executive board roles.”

Of course these are just a few key measures firms can attend to. There is no question, though, that if companies do not take serious steps to bring more women through to senior management positions and on boards, then conditions are likely to be imposed by government. Ultimately, it might benefit senior managers to remember that, rather than something to be done on sufferance, the business case for diversity suggests that greater representation of women at the most senior levels is truly in a company’s competitive interests.