Future of Female Directors Splits the Board

Although female and male directors have similar views on the regulatory and competitive pressures affecting companies and Boards, they don’t agree on the best way to improve Board diversity.

Female Directors are still the exception

The 2012 Board of Directors Global Survey (PDF), released in September by WomenCorporateDirectors (WCD), Heidrick & Struggles and the Harvard Business School, canvassed the opinions of over 1,067 directors from 58 countries. It found that while male and female directors had almost identical views on many issues, including unemployment, the economy, federal budget deficits and the regulatory environment, their opinions on diversity were much less in sync.

The authors of the survey felt that there had been little global progress on diversity year-on-year, given that responses about the priority of Board diversity and measures to increase diversity had not changed from the previous year’s report. A GMI report released in March 2012 quantifies this finding, stating that 10.5% of directors globally were female as at December 2011, a 0.7% increase on 2010.

When asked the main reason hindering the increase of female Board appointments, female respondents to the WCD survey answered that traditional networks tended to be male oriented, while male respondents blamed the lack of female directors in the executive pipeline.

Although both women and men thought that the most effective way to build diverse corporate Boards was to have the chair, lead directors and nomination committee chair champion diversity, the male members thought that developing a pipeline of diverse candidates through mentorship and training was just as important.

Males and females also felt very differently on the subject of quotas. A majority of female respondents (51%) thought that quotas are an effective tool for increasing diversity in the Boardroom, although only 39% supported their use. This contrasted to 25% of men believing that quotas are an effective tool, with 18% supporting their use.

Quotas are currently a topic of fierce debate in the European Union. Some European countries already have implemented quotas, for example Norway and France. However, a move has recently been made by European Justice Commissioner Viviane Reding to introduce quotas across the union as a whole. She has proposed the creation of a law that would force an increase of the percentage of female non-executive directors on Boards (excluding small- to medium-sized enterprises) to 40%, with companies to face member state-imposed penalties if they do not meet the quota.

The full proposal, to be aired this month, would need to be ratified by the 27 member states and the parliament before it could come into effect. It could be an uphill battle for Reding, with Britain fielding strong opposition together with the Netherlands, Bulgaria, Latvia, Estonia, Lithuania, the Czech Republic, Hungary, and Malta. These countries would prefer to use voluntary targets.

Country results in the GMI report varied widely. The US has only had a 0.5% increase from 2009 to 2011 to 12.6% of Board members being women, while Australia has increased the share of female directors by 5.4% over the same period to 13.8%. Australia’s performance was the second highest one year increase in female Board representation after France. The GMI report indicated that this shift had been driven by the ASX Corporate Governance recommendation that ASX-listed companies disclose their performance on gender objectives set by the Board, including the proportion of women in senior management and other company roles.

Yet, Australia’s percentage of women on Boards (reaching 14.6% in the ASX 200 as at 14 September 2012, according to the Australian Institute of Company Director’s “real-time” statistics) is not much higher than the EU’s around 14% average, and is much lower than that in countries like Norway which sits just under 40%.

A paper published in February by Churchhill Fellow Claire Braund, which examined the measures the UK, France and Norway had taken on Board equality, recommended that if the percentage of female directors on Australian Boards has not reached 25% by 2014, the Australian Government should commit to looking into quotas.

The Australian Government has paved the way for quotas following its promise during the 2010 election campaign to have 40% female representation on Australian Government Boards by 2015, which was expanded last year to apply to all government business enterprises, including NBN Co, Australia Post and Medibank Private.

Opponents to quotas believe that quotas are a “soft option” trying to fix a symptom, not the problems that are derailing women’s careers and leading to their low share of Board seats. They worry that quotas are potentially discriminatory and go against the concept of merit — a role going to the most deserving candidate. They also worry that men would not respect “quota women”.

Westpac CEO Gail Kelly has said that the naming and shaming of companies via corporate disclosure is a better way to tackle diversity than the mandatory placement of women on Boards. As mentioned, this is already occurring as set out by the ASX Corporate Governance guidelines.

This has not been the only non-quota measure Australia has undertaken. Sex Discrimination Commissioner Elizabeth Broderick brought together a group of CEOs and chairs, which became the “Male Champions of Change Group”. These men were to use their influence to ensure that increasing the number of women in leadership roles stayed high on the business agenda. This group has senior representatives from a number of leading companies, including Qantas, Commonwealth Bank, Rio Tinto, Telstra, ANZ and the ASX.

Given that currently only around 15% of directors are female, these initiatives would need to continue to reap growth of around 3% per year to achieve a 25% share by 2014.

Braund noted that there was widespread opposition to the 40% quota in Norway when it passed through the parliament in 2003, but there had been recognition after the fact that the quota had been the only path to change, as voluntarily, it would never have occurred.

If Boards do not champion diversity and gender equality in the near future, it may be that the decision will be taken from them.

After the quotas were brought in, Norway has experienced more educated directors, improved Board governance, younger Board members, directors with different experience and a closer connection to company executives, according to Braund. McKinsey & Company research found that companies with the highest share of women outperform companies with no women (PDF), as did Credit Suisse, although Credit Suisse found there was no difference in a bull market between Boards with or without women. It noted that Boards including women tended to be more defensive, performing better when markets were falling.

Given these facts, it makes sense for Boards to make sure their their diversity policy, while addressing relevant skill sets and experience as well as a global outlook, has a formal gender focus with the specific aim of improving Board effectiveness.

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