Questions for the audit committee to consider
- Does the company or the board identify qualified women to pursue as future directors or members of senior management?
- Has the board considered a woman for a committee chair position?
- Should the board open up searches to a more diverse pool of candidates or broaden search criteria to consider additional perspectives, skill sets and experiences?
- Has the company or the board encouraged a woman in senior management to pursue a board position at another company?
- Does the board think diversity should be a priority and does it have a strategy for building a board that is reflective of the market?
Of the $18.4 trillion in global consumer spending, women control $12 trillion and will have an even bigger share in the coming years.
During the past decade, more women than men have received bachelor‘s and master’s degrees in the US. Women continue to gain spending power, and they make up nearly half the workforce. What has been the resulting influence on corporate boards?
In 2002, only 13% of the more than 5,000 corporate board seats for S&P 500 companies were occupied by women. Ten years later, the number has only moved to 17%.1
Research indicates that diverse groups of individuals with different backgrounds, skills and perspectives outperform homogenous groups.2 This phenomenon seems to hold true in sports, schools and business.
As a result, shareholders, the buying public and even some governments are pressing for more diversity in corporate management and governance roles. Board members should take note and begin to address the need for diversity both in the boardroom and on board committees.
The case for more women
According to a new report from the Committee for Economic Development, between 2004 and 2008, companies in the top quartile based on highest average percentage of women directors outperformed companies in the bottom quartile by 26%, as measured by return on invested capital.3
Additionally, the Credit Suisse Research Institute recently reported that net income growth over the last six years averaged 14% for companies with women on the board, compared to 10% for those with no female directors.4
A company’s success depends on its ability to understand, serve and conduct business with an increasingly diverse population — and a population with more women than men. Women make up a sizable and growing portion of the labor pool, and they account for a large segment of buyers for many companies’ products.
Of the $18.4 trillion in global consumer spending, women control $12 trillion and will have an even bigger share in the coming years, according to a Boston Consulting Group study.5
Women offer unique perspectives that can help boards and companies develop strategiesfor growth, better understand their customer base and more effectively address and manage risk.
Boardrooms that don’t reflect these perspectives could be missing part of the picture and may be losing out on innovative ideas and valuable points of view.
The path to change
Corporate governance has changed significantly from 20 years ago. In 1992, Adrian Cadbury, the former Chairman of Cadbury Schweppes, produced a report on The Financial Aspects of Corporate Governance that influenced guidelines in Europe and North America. The Sarbanes-Oxley Act of 2002 improved reporting standards in the US, while the role of diversity on corporate boards was highlighted in The Tyson Report on the Recruitment and Development of Non-Executive Directors, which the British Government commissioned in 2003.6 These reports and codes brought attention to the racial and gender composition of boards.
Some European countries, including Norway, Spain and France, have introduced mandatory quotas for female representation on boards.
In 2003, the Norwegian Parliament passed a law requiring publicly listed companies to fill at least 40% of seats with women by 2008 — and by 2009, the target was achieved nationwide. More than 1,000 women in Norway now have board experience, and although the number of female chief executives is still low, it has increased since 2008.7
US investors are pushing for a market-based solution through engagement and shareholder proposals seeking greater gender and ethnic diversity in the boardroom. While the number of these proposals reaching proxy ballots is low (less than five per year since 2005), the level of shareholder support is growing.
For example, during the 2012 proxy season, the two proposals on board diversity that came to a vote received an average of 28% support.8 When the level of support reaches the 30% threshold, board members usually take notice.
The candidate pool
While many board members say that they want more female representation, there undoubtedly are challenges. For example, some boards may want to fill open positions with current or former chief executive officers, but the number of women on that list is small.
Only 19 (3.8%) of the S&P 500 companies currently have female CEOs. Other boards seek candidates with specific industry experience or certain skills or international experience — or all three. But qualified female candidates do exist, and there are actions being taken so that the candidate pool continues to grow.
Several organizations, including Women Corporate Directors, Catalyst and 2020 Women on Boards, share the goal of increasing the number of women on corporate boards.
Some serve to educate business leaders and motivate interested parties to do more to mentor women. Others coach and help women to better position themselves for governance roles.
Still others aim to build networks of qualified, highly skilled and experienced women and then work to connect them to open board positions.
Considerations for the board
The percentage of S&P 500 companies with at least one female director is just over 90%, yet there are still 49 companies with no women on their boards and 30% with just one.
With the rapidly changing population demographics, companies and their boards may need to make diversity a strategic priority. Companies and boards can do their part to help increase the number of women candidates and board members by supporting and advancing women at all levels.
Targeting talented women for promotion and providing active sponsorship programs for women also help increase the future supply of talented female director candidates. Finally, some boards and nominating committees are considering imposing voluntary benchmarks or targeting searches to only female candidates.
Jim Turley, our Chairman and Global Chief Executive, recently said, “It would only take 50 women to join the boards in Fortune Top 500 companies to bump the percentage of board seats filled by women by 1%.”
Imagine if each of the Fortune 500 boards and all other boards committed to adding just one female director in the next year? Will your board be one to make the commitment?
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1 Data source: 2005 through present,Ernst & Young’s corporate governance database; prior year data, Investor Responsibility Research Center, Board Practices/Board Pay.
2 The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies, Scott E. Page, August 2008.
3 Fulfilling the Promise: How More Women on Corporate Boards Would Make America and American Companies More Competitive, the Committee for Economic Development, June 2012.
4 Gender diversity and corporate performance, Credit Suisse Research Institute, August 2012, page 14.
5 Women Want More: How to Capture Your Share of the World’s Largest, Fastest-Growing Market, HarperBusiness, September 2009.
6 Debrebant, Serge, “Diversity in the boardroom,” Reporting, Ernst & Young, July 2012
8 Data source: Ernst & Young’s corporate governance database.