A Simple Way to Increase Board Diversity
by Sara Meyer-Davis, ION Executive Committee Member at Large
The jury is in – diverse boards create competitive advantage versus boards that are more homogeneous. Numerous studies have demonstrated the business case. Here’s more recent evidence:
Accenture’s research shows a significant correlation between both the gender and the international diversity of a company’s executive board and stock market performance[i]. Catalyst finds that companies with the highest representation of women on top management teams experience 35.1% higher Return on Equity (ROE) than those with the lowest representation[ii]. McKinsey indicates that companies ranking in the top quartile of executive-board diversity have ROE 53% higher, on average, than those in the bottom quartile. At the same time, EBIT margins at the most diverse companies are 14 percent higher, on average, than those of the least diverse companies.[iii]
In addition, companies in the United States are under significant competitive pressure globally as more and more international competitors are actively moving to increase representation of women on their boards, thereby increasing their competitive position. The U.S. cannot afford to forego the positive performance effects that are proven to result from diversity of thought, approach, and experience, a direct result of gender diversity.
A wise colleague recently said, “All parties involved with the creation and functioning of Boards of Directors must make a personal commitment to moving the needle to increase diversity of American boards”. So here’s a simple way to make that personal commitment to move the needle: Institutionalize board diversity - build it into the Initial Public Offering (IPO) due diligence process. There’s no downside – it’s a corporate governance best practice.
In recent years, there have been as many as 500 IPO’s, per year, globally. This means that approximately 500 companies transition from private to public ownership each year. With an average of 10 members on each board, 5,000 new public board seats are established each year. If just some of those seats were filled with the untapped talent of women, the likelihood of moving the needle in terms of board diversity is substantial.
On the surface, the IPO is the point at which a public Board of Directors is created. In practice, however, private companies usually have a Board made up of early investors, friends, and mentors that automatically transitions to a public board at the IPO. Yet the job requirements, workloads and liabilities for directors on public company boards are significantly more rigorous than those of private boards.
Common sense would suggest that private board members are thoroughly vetted prior to transition to public board service. Common practice often overlooks this matter in the arduous, tedious and exhausting process required to successfully bring an IPO to market.
Unless board make-up, including an appropriate mix of knowledge, skills, and abilities, is part of a due diligence checklist, the board will be an afterthought-to the likely detriment of the company and its investors.
Admittedly, the due diligence around IPOs is immense and the funnel is narrow, as an investment banking syndicate is required to take a company public. The approximately 50 investment banks globally that manage most IPOs perform significant amounts of due diligence to mitigate their financial risk for underwriting the deal. And it doesn’t stop there.
All of a company’s “trusted advisors” converge in the process: Management’s Counsel, Issuers Counsel, Auditors, Tax Advisors, Risk Advisors and Regulatory Advisors. Any or all of these advisors, not to mention potential investors in the IPO, have a vested interest in ensuring the board is diverse, professional, and prepared to govern. Any one of you can just do it … add Board Diversity to your due diligence checklist!!!
[i] Accenture Management Consulting, “Phoenix Report: Part 1″, 2011.
[ii] Catalyst, “The Bottom Line: Connecting Corporate Performance and Gender Diversity”, 2004.
[iii] McKinsey & Company, “A business case for women”, 2008.
A variation of this post first appeared on the New York Times Opinion Pages.
New Triumphs, New Trials: Practical Ways to Increase Diversity
Corporate executives are always on the hunt for strategic business plans. Fortunately, there is a financially-sound solution that is both innovative and under-used: elect more women to the board of directors. By making gender diversity a priority, companies on the verge of growth can follow in the footsteps of the corporations profiled in ION’s most recent report.
In Follow the Leaders: It Can Happen Here, ION recognizes 11 thriving companies that have experienced financial success and made gender diversity a high-priority business initiative. These well-known companies include Akamai Technologies, Alliant Energy, Cardinal Health, Coca-Cola Enterprises, Cracker Barrel Old Country Store., General Motors, Hormel Foods, H&R Block, HSN, Intuit and Xerox.
The days of diversity as a “feel-good” initiative are over. It’s time that companies large and small pay closer attention to the fiscal benefits of female representation in the boardroom. In fact, a 21st century boardroom must reflect the environment in which a company operates and competes. Here are some practical ways corporations can lead the pack:
- Make room for women directors – find ways to increase board turnover or increase the number of seats to fill
- Find new ways to identify board candidates – expand the search to include diverse candidates, various professional backgrounds. Look to forward-thinking nominating/search committees
- Don’t stop at one woman director – embrace diversity of thought as a strategic imperative for success. Aim for a critical mass (at least 30%) of women directors without adopting a “check the box” approach
- Look internally for talent – prepare and promote women executives for board service. Encourage all directors to be role models, mentors and advocates for mid-level and senior executives
Demonstrating positive business results should be reason enough for CEOs, sitting directors and investors to diversify their boards. With such shining examples of the business advantages offered by diversity initiatives, corporate boards have no excuse not to make this a priority in 2013.
Fulfilling the Promise
by Sara Meyer-Davis, ION Executive Committee Member at Large
As an advocate for gender diversity in the boardroom, the Committee for Economic Development (CED) is a likeminded ally. Since 1942, the nonprofit has conducted research on major economic and social issues to inform/engage the business community and shape public policy reform. Their most recent report, “Fulfilling the Promise: How More Women on Corporate Boards Would Make America and American Companies More Competitive,” advocates for gender diversity in the boardroom as follows:
- Allocation of available resources – Corporate competiveness is based on the efficient use and allocation of resources. Without women on boards, corporations fail to get the most out of the expanding resource that is the talented female workforce.
- Mandated quotas for foreign organizations – Companies with all-male boards may find themselves trumped by foreign competitors who have improved performance through voluntary commitment or nationally mandated quotas.
- Relation to target audience – Some studies have found that women directors lead to better profits; and there is no question that diversity helps companies relate to a wider range of consumers, suppliers and other stakeholders.
So what can business leaders do to fulfill the promise of more gender diversity in the boardroom? First they must publically make the promise by setting clear goals for transparency and action. To create policy change, corporations must remain accountable by disclosing their nomination committee’s strategy for implementing diversity. Additionally, nominating committees and search firms must remain in close contact to keep gender diversity top of mind for both parties.
CED’s report also spells out several other methods to help businesses fulfill the promise for diversity, including a note about work-life balance and mentorship. There is no doubt that CED presents a compelling and balanced business case. I urge you to pass this blog post – and the CED report – on to your executive colleagues who can leverage the business imperative for the advancement of women in the senior ranks.
Study Finds Strategic Opportunity in Regulatory Change
KPMG Reveals Insights and Leading Practices Reinforcing Need for Diversity of Thought
Change is the only constant in the realm of regulatory and legislative matters. Recently KPMG asked, more than 250 executives and board members how their organizations address the sometimes daunting new rules of engagement. “Adapting Business Strategy to the Regulatory Outlook” reveals that many business leaders see opportunity to spark innovation in the evolving landscape. From the development of new products or services to improvements in information management and data protection, respondents plan to ride the wave of change.
The study found that more than 90 percent of respondents agreed that these changes will keep impacting business decisions and will result in revamping traditional approaches to compliance, tax, IT and more. The authors further identified six leading practices to address this change, including the need for more innovation, collaborative internal systems, and shifting focus to view the interaction of corporate roles and functions holistically. We know that when gender diversity is present on executive teams and in the boardroom collaboration, innovation and risk management improves.
Today, what separates leading companies from their less adroit counterparts is the commitment to embrace diversity as a means to strengthen corporate governance, risk management, innovation, and growth. So as companies appoint new business leaders and board members, I encourage them to place emphasis on diversity of thought, experience, and leadership style, all of which is often embodied in gender, age, and ethnic diversity. I encourage all board members and executives to take advantage of the following resources:
- KPMG Institutes Online Community: Participate in webcasts and online events covering today’s most important topics; access premium content affecting your industry or organization; share your perspectives on critical business topics and industry issues; and more.
- Diverse Director DataSource (3D): Search the combined database of diverse qualified potential candidates and existing directors for individuals whose knowledge, skills and experience can bring fresh perspective to a boardroom and help a company achieve long-term, sustainable growth.
Women’s Innate Leadership Style Well Suited for Boardroom
by ION Treasurer and President Elect Sarah Meyerrose
A recent article in the Korn/Ferry Institute Briefings on talent and leadership discussed the “real” reason why women aren’t advancing to the top, despite documented increases in capable, educated women leaders. In “Why the Gender Gap Won’t Go Away,” the author cites U.S. Department of Education data that women received 44 percent of MBA’s in 2007. Despite the fact that women are increasingly more equally represented as MBA graduates, Catalyst Research Director Christine Silva notes that,
“…even with their very first job after MBA graduation, women start from behind when it comes to level and pay — even after we controlled for prior work experience, industry, region and other factors. A lot of people suggest that if we just give it time, the gender gap will go away, but we see if you give it time, the gap gets wider.”
The article reiterates prior findings that the “reasons” for this gender gap include the lack of internal support by senior executives; women leaders’ tendency to appear less confident and more cautious than their male counterparts; and female executives’ lower aggression and risk-taking qualities compared to their male counterparts. At the same time these studies almost counter-intuitively note that women are equally effective as men when negotiating on others’ behalf because it’s “consistent with the expected female role of caretaker.”
The author goes on to reject accepted remedies to overcome these “deficiencies” arguing instead in favor of viewing them as “ideal leadership characteristics:”
“But from a different perspective, it seems obvious that being thoughtfully cautious, believing one’s accomplishments should stand on their own, avoiding bluster and self-promotion, and being more comfortable advocating for others than for oneself are ideal leadership characteristics, not signs of a lack of confidence, ambition or efficacy. It would be preferable if, rather than requiring sponsorship to compensate for these “deficiencies,” more companies began to recognize the value of such behavior in its own right and rewarded it accordingly.”
While each individual brings their own unique approach to leadership, we must continue to search and advocate for the key characteristics that are most effective in driving improved outcomes. Please accept an invitation to join with ION in leading your colleagues and organizations to focus on the need for diversity of thought, experience and style, in large part by advocating for gender equality in board rooms and executive suites. March is “Women Helping Women” month. Why not celebrate it by committing to sponsor and support a high-potential woman in your company or sphere of influence? You can make a difference in helping to narrow and eventually close the gender gap. Start today…you’ll be glad you did!
Increasing Boardroom Gender Diversity in 2012
The energy of a new year often lingers through January, especially when we reflect on how far we’ve come and the opportunities that await us. ION’s eighth annual status report of women directors and executive officers of public companies in 14 U.S. regions, titled “Gender Imbalance in the Boardroom: Opportunities to Change Course,” summarizes this nicely. Published last month, the report recalls ION’s new organizational friendships, a fresh proxy toolkit and much more. You can download the full-color PDF or request printed copies to hand out at your organization’s next event.
For the first time, the release of ION’s report coincided with Catalyst’s release of their annual census on the number of women on Fortune 500 boards. This helped us get national attention in publications such as Forbes. Look for ION to form more mutually beneficial relationships in 2012 with like-minded organizations.
With a reach that exceeds more than 10,000 women nationwide, ION is prepared to raise the bar when it comes to advocating for gender diversity in the boardroom and executive suites. Can we count on your support? The ION website’s Events page is an excellent place to start. Check out “Unlocking a Source of Growth: Women in the Boardroom” at the end of January in Sacramento, Calif. and “Executive Presence: Being Perceived as a Leader” in Atlanta in February. In April, there’s “Roadmap to the Boardroom” in Baltimore and The Conference Board’s “2012 Women’s Leadership Conference” in New York. Most of these events are open to both ION members and non-members alike interested in learning more about what gender diversity means for their industry, organization and career.
As we continue to strive for a balance of patience and fervor for our cause, I’ll leave you with this question: What will you do to increase gender diversity in the boardroom in 2012?
Congratulations Chelsea Clinton: this is what we are working for!
Yes, she is only 31 and no, she is not a sitting CEO. She is a graduate student at Oxford University who has a diverse professional background. She has served on the boards of several nonprofit organizations to get experience in corporate governance and boardroom dynamics.
We applaud IAC/InterActive Corp. for having the vision to appoint a board member who, by virtue of her gender and age, knows it business: interactive internet represented by such sites as CollegeHumor, Shoebuy.com and City Search – the sweet spot for Chelsea’s generation. In addition to choosing her for her competency, Chelsea will be the first woman to join the IAC board.
Of course, the Wall Street Journal article would not have been complete without referencing Chelsea’s connections, and that these connections, not the least of which are her famous parents, “may” have helped her land this plum job. Nonetheless, her appointment is what keeps us pushing forward to celebrate the day when a woman is recognized for the value and balance she brings to a male-dominated boardroom.
Diversity Champions Make Great Leaders
I recently had the opportunity to author a guest blog post for ION Member Watermark. In “Diversity Champions Make Great Leaders,” I explain why companies need key designated officers to propel diversity across the corporate structure.
Read the full blog here.
A Good Board is a Balanced Board
Here’s a thought: what would the business world look like if run entirely by women? After all, women are thought to be more collaborative and sensitive to certain market issues. It would be a positive change, right?
Wrong. Critics of gender diversity efforts often cite overt feminism and lack of evidence when arguing against electing more women to boards. But what they fail to highlight is the fact that gender diversity advocates like ION acknowledge that a corporation needs businessmen just as much as it needs businesswomen.
Hindered by a longstanding business tradition and a general lack of awareness, companies continue to elect more men to their boards – often stating that the pool of qualified women is too shallow. Yet women make up approximately half of the work force and the majority of the consumer
So why are women still so poorly represented in the corporate boardroom?
There is an abundance of women who are ready, willing and able to sit at the table. And qualified women at that. Contrary to a widely held belief, a board member does not have to be a sitting or retired CEO. Although an excellent addition to a board, a chief executive officer can only contribute to the scope in which he or she is an expert. Thus it is beneficial to the corporation when the board members have diverse expertise, even if this means they have a different title.
While this approach is far from mainstream, it’s important to remember that a good board is balanced board – with experts in marketing, human resources, capital markets, corporate governance, and community affairs, along with industry and financial experts. Coincidentally – or not – women are dominant in many of these industries. In fact, no one has ever said that credentials, company match and board chemistry do not count.
All we are asking for is the same chance provided to our male colleagues.
3D helps give us that by putting nominations in the hands of shareowners. Paired with ION’s Investor Toolkit, the database makes gender diverse boards more of a possibility than ever.
We urge corporations to view the issue of women on boards as a strategic move – an opportunity to develop a more effective, well-rounded business model. In fact, there is growing evidence that points to a stronger financial performance for companies with gender-diverse boards, as well as a better financial outlook for corporations with diversity at the senior management level.
It no longer makes sense to deny capable, professional women the right to serve on a board. But it does make sense to speak about the need for women directors. It makes sense for investors to uphold gender diversity standards. And it makes even more sense to put straightforward tools like 3D in the hands of shareowners and board recruiters.
As we move into the next stage for boardroom optimization, ION will continue to support important initiatives like 3D, and help corporations evolve beyond token representation to a critical mass of women directors.
Talking the Talk, Walking the Walk
Yesterday, ION and PAX World kicked off their co-sponsored “Gender Diversity as an Investment Concept” series of events. The first event in Florida, hosted by ION’s member organization Women Executive Leadership, drew a record turnout of senior executive women in the Tampa area. Raymond James Associates (a subsidiary of Raymond James Financial) President Dennis W. Zank served on the panel with me, along with Kathleen McQuiggan, representing PAX World. Dennis is a true “Guy Who Gets It.” He understands that in order to increase the number of women in the executive suite, it must make clear business sense. Not only is he a strong believer in gender diversity, he has also put the idea to action in Raymond James. Dennis supports female financial representatives and provides them with the tools and support they need to best serve their clients and make progress in their own professional endeavors. With concentrated company diversity initiatives, women’s support groups, events and two female directors, Raymond James is well on its way to reaching a critical mass of women. For corporations that wish to follow suit, there is an abundance of qualified women who are ready, willing and able to serve in your executive ranks and in the boardroom. I encourage you to use the Raymond James model as an example, reference our Take Action page and contact me to find out more about how you can connect with women leaders in your area.