With few exceptions, corporate boards of directors have historically been composed of white males. That is changing, albeit slowly. Based on the latest Catalyst figures, women constitute only 11% of Fortune 1000 company board seats, and 25% of Fortune 1000 companies still have no women on their boards. Admittedly, Fortune 1000 firms constitute only a fraction of companies in the United States; however, because there is limited knowledge about the board composition of non-publicly listed firms, we have to rely on the information we have. This information prompts us to ask why there are so few women on major company boards when apparently there is an interest in increasing the number?
Julie Daum, the North American board practice leader at Spencer Stuart, says, “When I began working with corporate boards ten years ago, there was a reluctance to add women to the board. Many CEOs only added women as a response to public pressure. Times have changed. Now, we see an unprecedented demand for women as companies look to bring on a second or third woman.”
Carolyn Nahas, managing director of Korn/Ferry International in Southern California, says, “Today there is a greater demand for women because it is increasingly acknowledged that boards should reflect the American population and its customers—not just because it’s the right thing to do, but because it makes good business sense.” So if it makes “good business sense” why are there still so few women directors?
I asked a number of male CEOs of large firms why they have no women on their boards. Their response most often was “I’d like a woman on my board, but I can’t find one.” When I asked the follow-up question, “What kind of women are you looking for?” I was given a list of qualities that many of their male board members didn’t possess. There is no shortage of women ready, willing and able to fill board seats, however, if a company wants a woman board member, it has to look for one, which is what boards with women have done.
Unfortunately, women with education, expertise and track records that qualify them for board membership remain at a disadvantage when competing with men. In part, this is because those who make board appointments tend to look at candidates within their own personal and professional networks. These networks historically have not included women; thus there are few or no women on their radar screens. While search firms include women in their director candidate pools, the disadvantage remains because doing business with senior executive women is still a new experience for many men in client companies, and there is a subtle comfort issue that can’t be ignored. Put simply, we all prefer being with others like ourselves. Why? Because we can understand and predict the behavior of people like ourselves. While unspoken, this is a major reason men prefer to have men on their boards. Due to the discomfort and confusion men experience working with women in other than traditional support roles, female board candidates are frequently subjected to “competency testing.” Competency testing means women have to prove themselves over and over again by meeting a set of criteria which their male competitors need not meet. As important, women have to make sure those making board selections are comfortable with their style as well as convinced of their competence.
If, as has been stated above, it makes good business sense to have women on boards, what is meant by “good business sense?” Good business sense means taking into consideration the following: knowledge of the labor pool; knowledge of new and growing markets; interest in improving corporate governance; and the tracking of revenue and profit, i.e. attention to the bottom line.
The Labor Pool Argument
Women are in the workplace to stay, and many want careers, not jobs. If firms are to recruit and retain skilled employees, corporate managers and future executives, they must consider women as an important part of their labor pool. Women constitute one-half of the workforce, half the number of college graduates, and half of those in graduate schools. Women are being trained for, and aspire to, senior level positions. They no longer are content to occupy staff positions that don’t lead to important line experience. So it follows that paying attention to the best and brightest women, since they constitute a growing percentage of the labor pool, is important. Companies that have women on their boards send a message that women are valued in their firms. Conversely, when potential female employees and key existing employees see no woman on a board, it raises questions about the corporate culture and a woman’s chances for advancement.
The Market Argument
Today, women constitute a major part of most consumer markets, and it is growing as more and more women assume responsibility for consumer purchasing in the home and car markets. Yet, their needs and preferences are still frequently overlooked because their voices are not heard. I was once asked why a profitable automobile company needed more women decision makers, to which I replied, “If women designed cars, we’d have a place for our purse.” In the professional legal and financial services field, too often it is assumed it is men who make the major financial and legal decisions. While banks and law offices are beginning to pay attention to the female market, their boards often don’t reflect their customer base. Clearly, board members don’t get involved in day-to-day marketing and sales decisions. However, the presence of a woman on a board makes it more likely, than not, that frequently overlooked female market issues will be identified and addressed.
The Governance Argument
Perhaps the strongest argument for having women on corporate boards is that their presence often improves corporate governance. Women board members have said their presence changes the conversation, not only do sexist language and jokes disappear, but the number and type of substantive issues which are considered is broadened.
I asked Shirley M. Hufstedler, an experienced corporate board member, how she thinks the presence of women changes a board. Hufstedler served for many years on both the Hewlett-Packard and US West boards, and currently sits on the Harman International Industries board. She said it is her observation that female board members usually understand, better than men, how to appeal to women as consumers and as employees. “Also, because women are acculturated differently from men, they tend to listen more and see problems and solutions differently from their male colleagues.” In many ways this expands and enhances board discussion and deliberation.
Women also tend to ask different questions than men. Jane Evans, who sits on the boards of Altria (formerly Philip Morris Companies), Georgia Pacific, KB Homes and PetsMart, says “Women ask questions that men don’t think to ask, because women come from a completely different environment and vantage point.” Being outsiders, even as directors, women are more likely to ask questions that male members avoid. Being an outsider gives one a sense of freedom that insiders don’t always have. This outsider freedom is valued characteristic of independent directors, the type of director much sought after today.
In May of 2002, The Conference Board of Canada published findings of a major study they did of women and corporate boards. These findings suggest a strong link between female numbers on boards and good-governance credentials. The researchers found that 94% of boards with three or more women (compared to 58% of all-male boards) insist on conflict-of-interest guidelines; that more female than male directors pay attention to audit and risk oversight and control; that women, more than men, tend to consider the needs of more categories of stakeholders and; that women, more than men, tend to examine a wider range of management and organizational performance. The findings reveal that 72% of boards with two or more women conduct formal board performance evaluations, while only 49% of all-male boards do; that companies that provide boards of directors with formal, written limits to authority have a greater percentage of women directors than do organizations with no formal limits to authority and; organizations that provide boards of directors with formal orientation programs have a greater percentage of women directors than do organizations with no such program.
Betsy Berkhemer-Credaire, president and co-founder of Berkhemer/Clayton Inc., has for years focused on helping firms diversify their boards, part of that diversity being women. As a vehicle for sharing experience about board membership, Berkhemer Clayton holds a luncheon every year, to which she invites California female corporate board directors. At these luncheons, the board members focus on one or more major corporate board issues, however, the topic of gender differences permeates the discussions.
The role of the CEO in promoting women to leadership positions, such as board membership, turns out to be key. A good example of a committed chief executive is Leonard Schaeffer, CEO of Wellpoint, the nation’s largest publicly traded healthcare company. Wellpoint is a Fortune 500 company and four of its nine-member board are women (one of the highest percentages in the country). Twenty five percent of its executive vice presidents are women, 26% of senior vice presidents are women, and 36% of general managers are women. Wellpoint is a very successful firm financially, and if its CEO could find four women to serve on a nine-person board, it would seem other chief executives and nominating committees could find one!
The Bottom Line Argument
A study by Roy Adler, a professor at Pepperdine University in Malibu, California, tracked 215 Fortune 500 companies, comparing their financial performance to industry medians. He found that “companies that smash the glass ceiling also enjoy higher profits.” In a recent Harvard Business Review article presenting his findings, Adler showed that “the companies with the highest percentages of female executives delivered earnings far in excess of the median for other large firms in their industries.” The Canadian Conference Board findings support those of Adler. It tracked the financial well being of firms with two or more women on their boards in 1995 to see where they stood six years later. It found that firms with women board members were much more likely than companies with all-male boards to be leaders when ranked by revenue or profit. While these two studies do not a theory make, they suggest there is a relationship between the presence of women on boards and financial performance.
Much more research about US firms, particularly those other than large, publicly held corporations, is needed to explain how and why the presence of women on corporate boards makes good business sense. However, in the meantime it is hard to ignore the evidence that putting women on boards makes good business sense. Doing so is consistent with the nature of the labor pool, the important female marketplace, the need to improve corporate governance, and the ever-present competitive requirement to increase revenues and profits.
This article was published previously in Directorship, May, 2003.
About the Author
Judy B. Rosener, PhD, is professor emerita at the Paul Merage School of Business, University of California, Irvine. She is the author of the path-breaking Harvard Business Review article, “Ways Women Lead” (1990), co-author of Workplace America (McGraw-Hill/Irwin, 1991) and sole author of America’s Competitive Secret, Women Managers (Oxford University Press, 1995). For further details and contact information visit www.lsegil.com.