Do women on boards improve governance?

Corporate secretaries should help build a pipeline of female board candidates.

Can the gender of board members make a difference to how a company is run? There is a growing body of evidence that suggests having three or more women on corporate boards can lead to improvements in performance, diversity and corporate governance.

‘There has been a lot of research of late into the impact of adding women to boards and the results point to benefits, including higher profits and higher-quality earnings,’ says Geena Davis, the Academy Award-winning actress who has gone on to establish the Geena Davis Institute on Gender in Media and is also an appointee to the California Commission on the Status of Women.

Davis points to a study by Catalyst, an organization focused on measuring women’s progress in the professional world, which finds that ‘more women in the boardroom will result in more women in senior management positions.’ She also says there is research ‘showing that a diverse body will make smarter decisions than a more homogenous one, even if the members of the latter group are more intelligent.’

The right place at the right time

CookOf course, there are plenty of intelligent people of both genders capable of sitting on boards – women just have to work harder to put themselves in the right situations to be selected. As companies decide who to invite onto their boards, ‘talking about board composition is part of the whole picture,’ notes Amy Cook, pictured right, associate general counsel for corporate governance at Capital One Financial. ‘Many women have leadership skills and experience that reflect the changing needs of business, so this, in turn, should be reflected on boards.’

While not all studies agree that women on boards make companies better, most do acknowledge that the presence of women on boards changes the behavior of male board members and often has an effect on the decisions the board ultimately arrives at. For example, a 2008 study by professors Renée Adams of the European Corporate Governance Institute and Daniel Ferreira of the London School of Economics found that women tend to have better attendance records at board meetings than their male counterparts.

‘In fact, the more women on the board, the more men’s attendance record improves,’ says Richard Leblanc, associate professor of corporate governance at York University. The study also found that females are more likely than men to sit on audit, governance and nominating committees (monitoring committees). ‘Gender-diverse boards allocate more time and effort to monitoring, and diverse boards are more likely to hold CEOs accountable for poor stock-drive performance,’ Leblanc notes. Such an atmosphere of accountability will undoubtedly change the decisions the board makes.

Gender diversity affects governance

Certain issues seem to receive more attention when there are several female board members present, according to experts. Women tend to raise questions their male counterparts often disregard. What’s more, once granted the opportunity, women can take traditional conversations in new, unexplored directions that can lead to different outcomes.

fore‘Men are more concerned about strong internal controls, keeping up with the new regulatory environments and good corporate governance processes,’ says Henrietta Fore, pictured left, board chairman and chief executive of Holsman International, an investment and management company. ‘Women, on the other hand, are particularly concerned with succession, growing the senior staff and sustainable shared value, and this tends to lead to good governance.’

Fore, who also co-chairs the Asia Society board, the Women Corporate Directors organization and the North Africa Partnership for Economic Opportunity, says women pay more attention to succession planning because they see the need to create a pipeline of successful CEOs, which in turn has a positive impact on the firm’s overall performance culture.

She also believes that women gravitate toward issues involving corporate citizenship or CSR, making these issues more of a priority for the boards on which they serve. Many experts contend that companies that fulfill their duty to society and implement effective CSR measures will see improved standards of corporate governance. ‘What may connect the dots between corporate governance and sustainable shared value is a more diversified board,’ says Fore. ‘A more diverse board can drive performance levels while expanding the thinking of the boardroom outside a very company-centered mind-set.’

These small changes in board focus may well be worth the effort to recruit more female board members. ‘There is an increasing demand for women directors because there is a clearer understanding from their male counterparts that companies need to better focus on their stakeholders, including shareholders and customers,’ says Leanne Likness, former corporate secretary of Canadian energy distribution, supply and service company Enmax.

‘Shareholders are demanding sustainable business success, and this is difficult – if not impossible – to accomplish if your board is not composed of individuals who represent the diverse points of view of the stakeholders and customers, which are essential to the success of the organization.’

Transparency and trust

It may just be a coincidence, but some of the most costly corporate scandals in history – Enron, WorldCom, AIG and Tyco – had boards that reflected the old adage: pale, male and stale (that is, made up exclusively of older white men).

To be fair, there have also been all-white-male boards that have done excellent jobs running their companies, but those who advocate for more board diversity suggest that the presence of women may keep the risk-taking culture of the ‘all-boys club’ more honest.

DSEvelyn Dilsaver, pictured left, former president and chief executive of Charles Schwab Investment Management, currently serves on more than five boards, including two public company boards: Aéopostale and Tempur-Pedic. She says that when it comes to corporate governance, women can often find new ways to make changes and improve transparency.

Dilsaver recalls serving on the board of a company at which the head of governance was a woman who took the initiative to convince the board (composed primarily of males) to perform individual evaluations of all board members and all board committees, as well as self-evaluations.

‘We did not use a third party; rather, the head of governance was the one who interviewed each of the board members and collected their thoughts,’ Dilsaver recounts. ‘Feedback was then given to each board member in private, and it was a very thoughtful, non-threatening process. I believe that because this woman  headed the committee and everyone trusted her, it worked.’

Increasing women’s numbers

There is widespread debate over what methods should be used to help increase the number of women on corporate boards. While measures calling for quotas for female board membership are gaining traction in Europe, many participants in a recent panel discussion entitled ‘Do three or more women on a board make a difference?’, held by Women Corporate Directors, felt the merits of these types of laws are questionable.

‘I don’t believe quotas solve the problem,’ said Maggie Wilderotter, chairman and chief executive of Frontier Communications, at the discussion. What companies must do instead, she suggested, is help increase the number of women in the operational roles that are so attractive to board nominating committees. ‘We don’t have enough women in operating positions, and affording women that opportunity in the pipeline is critical,’ she stated.

Adding to that sentiment is Cook, who says, ‘It is important to build a pipeline of women directors through mentorship, networking and education,’ and adds, ‘There are several programs that are focused on that aspect, including the Women Corporate Directors and the Standford Women on Boards Initiative.’

Leblanc notes that until very recently, Canada had a bill (S-206) at the Senate committee level requiring that boards of a broad swath of publicly traded financial institutions and Crown companies be made up of 50 percent women. A similar quota has been suggested in the UK, but it has not yet reached the regulatory proposal stage. On February 3, 2011, Canadian Liberal Senator Céline Hervieux-Payette, the bill’s chief proponent, issued a press release entitled ‘Conservative senators kill Bill S-206’. In it she accused the Conservative government of having ‘a particularly regressive view of women in our society.’

According to the GovernanceMetrics International (GMI) 2011 ‘Women on boards’ report, the three European countries with the highest aggregate percentage of female directors are Norway (35.6 percent), Sweden (27.3 percent) and Finland (24.5 percent). However, while Norway was the first country to implement diversity quotas for boards, ‘From 2009 to 2011, the aggregate percentage of female directors has actually dropped slightly from 35.8 percent to 35.6 percent,’ the GMI study says.

In the UK, the financial crisis has been a catalyst to push for more women in boardrooms. In October, the Financial Reporting Council (FRC), the UK regulator responsible for corporate governance, announced its decision to amend the Corporate Governance Code to enhance the principle on boardroom diversity, which was introduced into the code in 2010.

The amendments will apply from October 1, 2012, and will require listed companies to report annually on their boardroom diversity policies, including those related to gender, as well as on any measurable objectives they have set for implementing the policy and the progress made in achieving them. The FRC will also update the Corporate Governance Code to include board diversity as one of the factors to be considered when evaluating its own effectiveness.

How corporate secretaries can promote a diversified board

Corporate secretaries act as gatekeepers to the board and their primary duties include educating the
board and management, and raising awareness of issues that can improve corporate governance.

According to Henrietta Fore, board chairman and CEO of Holsman International, a manufacturing investment
and management company, the corporate secretary can:

1. Ensure every director slate voted on includes a woman. Corporate secretaries can look for and reach out to women and other diverse candidates who can bring important perspectives to the board, help ‘balance’ board thinking and contribute to improved performance. Corporate secretaries understand the various voices on the board, and where the company is looking for expertise and growth. They are also in a good position to encourage diversity of director candidates, and are often those in contact
with board search firms.

2. Identify talent within the corporation. Building a pipeline of diverse executives at your company can drive better performance at all levels of the organization. It can also help to create a succession planning ‘bench’ where senior talent can mentor exceptional up-and-comers who can possibly hold board positions at other companies, enabling them to further develop their leadership potential. Corporate secretaries can help drive this leadership development and conduct training sessions for management on the functions of a board and how to pursue board service.

3. Educate and inform the board. Corporate secretaries can connect board members with groups such as Women Corporate Directors, a resource for women directors to gather more information on topics related to serving on a board and committees. These organizations serve as forums for best practices in corporate governance and CSR.

Slow progress

According to a report from Lord Davies released in February 2011, there has been only a slight increase in the percentage of female directors in the UK. The Davies report aimed to identify the barriers preventing more women from taking up directorships at the UK’s listed companies and suggest ways in which those barriers can be mitigated. It makes a series of recommendations, among them that ‘FTSE 100 boards should aim for a minimum of 25 percent of female representation by 2012.’ It also suggests companies be required to disclose the proportion of women on the board each year.

In the US, SEC governance disclosure rules call for a description of the skills and experience needed for the board, including ‘disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for directors.’

‘There are places for quotas, but the board is not one of them,’ noted Donna James, a director of Coca-Cola Enterprises, Limited Brands and Time Warner Cable, during the Women Corporate Directors discussion. She said there is a need to start at the root of the corporation, and advocated ‘getting more women into [senior and executive] roles so that they are prepared. [Lack of women on boards is] so systemic that I’d hate to begin at the end. It really needs to start back where we encourage our girls from an educational standpoint.’

Although recent trends suggest there is hope for optimism, the year-to-year projection of the numbers, coupled with the regulations that have been proposed and enacted in this area, show how difficult it has been to bring about robust change in the upper ranks. While the C-suites and boardrooms of the largest US companies have a greater share of women than they did five or six years ago, a true commitment from companies to stand by their words has yet to be seen.


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