Gender Governance: Women on Boards

Screen-Shot-2014-09-24-at-07.16.32 Gender Governance: Women on Boards

In 2011, Lord Davies of Abersoch published the groundbreaking “Women on Boards Review,” which sought to identify the barriers that were keeping women from greater participation in the boardroom and to make recommendations as to what the business community and government could do to eliminate such barriers. Although the report focused on England’s FTSE 100 Index of companies, the same momentum has been occurring with respect to America’s corporate boards as well as globally, although at differing paces. The three year look-back confirms that boards comprised of women members outperform their non-diverse counterparts.

Report Set Progress Metrics

An outcome of Lord Davies’ study was the establishment of the Women on Boards Steering Board that meets every six months to report on the progress being made vis-à-vis the measures recommended in the original review. Although Lord Davies set a target of achieving 25 percent of board participation by women by 2015, the latest figures show that as of first quarter 2014, women account for 20.7 percent of board positions in the FTSE100 — up from 17.3 percent one year earlier. In comparison, in the United States, women make up 18 percent of the directors sitting on S&P 500 corporate boards.

Better ROE

A Credit Suisse Research Institute study of 2,360 companies worldwide conducted in 2012 revealed that organizations with at least one female director had better returns on equity for six straight years compared to companies with no female board members. Despite this rather obvious financial incentive, progress is still considered lagging with some critics calling for regulation over voluntary board appointments. Interestingly, countries with mandatory female board appointments fared worse in terms of corporate well-being.

Quotas Not the Answer

In 2008, Norway imposed a quota requiring 40 percent of public company board members be women. What followed was an exodus from the Oslo Stock Exchange whereby half the companies delisted in order to avoid mandatory board quotas. Among those that remained on the exchange, some companies fired “more senior male directors to bring on younger, less experienced women” (Source: . Unlike the results found in the Credit Suisse study, the result in Norway was that many such companies borrowed more debt and in fact lost value.

Commenting on the economic incentive model versus mandatory quotas, Britain’s Minister for Women and Equalities Maria Miller stated:

“It makes clear economic sense for women to be able to rise to the top. Good progress is being made in Britain through a cultural shift that promotes on merit, not through the mandatory quotas advocated by others. ”

Given a level playing field and adherence to core business values, gender diversity on corporate boards will prove to be plain good governance.