Increasing gender diversity on boards of directors has been part of a growing global conversation in recent years. Some countries are moving toward it faster than others. Increasing the number of women on boards is considered best practices today, but it may be a requirement at some point in the near future.
Corporations in the United States are trending toward adding women board directors, albeit slowly. Of S&P 500 corporations, about 33% of board seats are held by women. That number represents a 24% increase in women directors since 2005. Overall, only 19% of U.S. board seats are held by women board directors.
Statistics show that women bring a lot of expertise to boards. Despite the facts, old habits sometimes die hard, and that seems to be the case for many corporations. Recruiting and appointing women to more boards will require a change of thinking and a drastic change from the status quo.
Benefits to Having Women in the Boardroom
Statistics are beginning to emerge that show that bringing more women into the boardroom is more than an equality issue. According to McKinsey & Company, companies in the top 25% for gender diversity in management positions had a 21% more likely chance of having profits that were above average.
Credit Suisse produced a report that showed that corporations that had larger numbers of female executives as senior leaders had higher returns on their investments. Credit Suisse also states that corporations with women in leadership positions were better than those with all-male leaders at risk mitigation, crisis management and dealing with critical issues, and they tended to show less favoritism in group settings.
The Movement Toward Gender Diversity on Corporate Boards
One of the few European countries that regulate having women on boards of directors is Germany. In addition, since 2016, Germany has required companies to hire women for at least 30% of supervisory positions.
In the United States, legislators and regulators are hoping for a more organic approach to balancing the scales in favor of gender diversity on boards. While there's been a steady increase of women on boards, progress in the U.S. remains slow, with one notable exception ' California. The Golden State's Senate Bill 826 was a game changer. SB826 was approved on September 30, 2018, with an acknowledgment that women are vastly underrepresented on boards of directors.
The new law requires companies listed on exchanges that have their headquarters in the state to have at least one woman on the board by the end of 2019. The law doesn't stop there. By July 2021, listed companies that have five members on their boards must demonstrate that they have at least two women on their boards. Listed companies with six or more board directors must show that half of them are women.
Fines for noncompliance with SB826 can be steep. Companies may be ordered to pay fines of $100,000 or more.
Proxy Firms and Investors Are Promoting Gender Diversity
Institutional Shareholder Services (ISS) is also taking a stand in favor of adding women to corporate boards. ISS is the world's largest proxy advisory firm, and they're considering a proposal to update their board gender diversity policy to dissuade companies from having all-male boards. Their idea is to recommend voting against nominating committee chairpersons who fail to recruit and appoint women board directors.
ISS states that, if approved, the policy would apply to large-cap, Russell 3000 and S&P 1500 companies. ISS estimates that about 10% of Russell 3000 companies would be affected.
Investors are taking a similar stance as proxy advisors. BlackRock is the world's largest asset management firm, and there are claims that they plan to stop investing in businesses that refuse to address gender diversity on their boards. BlackRock set their preferred number on at least two female board directors for Russell 1000 companies. Larry Fink, BlackRock's CEO, affirmed that BlackRock would continue to promote the idea of having a diverse board. Their power and influence are expected to be far-reaching.
10 Best Practices for Gender Diversity on Boards
As the trend toward increasing the number of women on boards evolves, here are 10 best practices for gender diversity on boards:
- Offer greater flexibility. One of the challenges that women have long faced in the workplace is juggling work and family on a larger scale than males. With statistics showing strong marks for the achievements of women, corporations can get the best from their women leaders by implementing family-friendly practices, such as offering parental leave and allowing flexible working hours.
- Use various communication channels to talk about the many benefits of having diversity policies. Provide information about how the policies came about and how they will build value within the company.
- Consider the whole person. It's fine to look at member profiles, but nominating committees should also be looking at how a woman's skills complement the skills of others who are already on the board.
- Use multifaceted recruiting avenues that go beyond headhunters and the board's personal and professional networks. Actively seek out qualified women leaders even if they lack board experience.
- While gender diversity may start at the top, try to factor in gender diversity throughout the various departments and operations, so that it becomes part of the corporate culture.
- Start a program of providing mentorship, skills enhancement and networking for women who have their eye on moving up. This step will increase the female talent pool.
- Revisit succession plans according to the strategic plan and future goals. Look for women with a strong IT background or those who possess certain other notable skills or experience.
- Practice gender diversity on the board and in operations and be sure to note the changes in the disclosures of how the board focused on gender diversity during the board member candidate search.
- Work toward defining the optimal board composition that also considers a strong increase in women board members.
- Look for leadership qualities in women who demonstrate they have the talent and skills to evaluate management's ability to perform risk management and who will be strong overseers.
Many organizations are responding to the pressure to increase the number of women on their boards by increasing the number of seats on their boards. This may be appropriate in a few situations, but it shouldn't be the only reason for opening up an additional board seat. Gender diversity should remain a top issue as boards work toward refreshing their boards.
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