ICGN panel makes business case for board diversity

Jul 03, 2013
<p>Increasing women's access to senior management positions is seen as key to reaching critical mass on boards.&nbsp;</p>

The shortage of women serving on corporate boards is no longer only a matter of gender diversity; it’s starting to become a business issue.

That point was made by Sacha Sadan, director of corporate governance for UK-based asset manager Legal & General Investment Management on a panel addressing gender diversity on boards at the International Corporate Governance Network’s annual conference held in New York City on June 27-28. And far from being true only in the UK, it was echoed by panelists from the US and Australia. 

The composition of boards in the UK has recently become more favorable to women: 17.4 percent of all members of FTSE 100 boards are now women, up from 10 percent a few years back. But the pipeline of women gaining access to senior management positions, which gives them better odds of being nominated for board seats, has slowed in recent years, said Sadan. Citing statistical evidence, he said there needs to be more than one woman on a board to make a difference in the way boards think and operate.

The need for women’s perspectives in the boardroom has become ‘a business imperative,’ agreed Anne Sheehan, director of corporate governance for the California State Teachers Retirement System. ‘It’s on [CalSTRS’] agenda because of performance,’ she explained. 

Sheehan cited studies in recent years by McKinsey & Company, Catalyst and Credit Suisse that all concluded that companies’ organizational and financial performance were starting to be affected by the lack of women’s perspectives on their boards.   

She also discussed the impact of a letter she sent to Facebook, which the pension fund had invested in before its IPO through a venture capital firm, in securing a foothold for women on the social media company’s board. One point the letter made was that because women represent a substantial portion of the company’s global user base, they deserve a seat at the governance table.

The result was that Facebook’s chief operating officer, Sheryl Sandberg, was named to the board a month after the IPO, followed by Susan Desmond-Hellmann, the chancellor of the University of California, San Francisco, and the company’s first independent woman director, nine months later in March 2013.

‘Now we’re working on the critical mass issue’ as part of the 30 Percent Coalition, said Sheehan. That coalition was launched by 27 senior executives, governance experts and founders of women’s organizations in February 2012 with the goal of having women represent 30 percent of every board by the end of 2015. Tokenism doesn’t have an impact, she added.

As for addressing the dearth of women in the leadership pipeline, Sheehan urged investors, when they engage with management, to ask about succession planning and how the company is encouraging diversity in the C-suite. ‘This is the human resources aspect of the [company’s] long-term value chain,’ she said. 

Doug Chia, corporate secretary at Johnson & Johnson and the moderator of the panel, asked how success in gender diversity on boards would be measured.

‘When there are women on all boards, not a [specific] number,’ said Ann Byrne, chief executive officer of the Australian Council of Superannuation Investors. Her goal is for every company listed on the Australian Securities Exchange to have at least two or three women members within the next 10 years, she said.

Sadan said his firm will vote against director slates that management nominates if companies aren’t making progress on this issue and aren’t disclosing how they evaluate board nominees by 2015. The UK government has threatened to impose quotas on FTSE boards if women don’t account for at least 25 percent of their membership by 2015, he added. Quotas are a possibility in Australia as well, said Byrne, while Sheehan said this was not an option in the US.  

‘True success will be when we don’t have to talk about this anymore,’ said Sheehan.

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