byRomy Newmanon Mar 28, 2016

What's Keeping More Women from Being on Boards?

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What’s keeping more women from being on boards? Tenure, among other things. Just 17% of Fortune 500 board seats are held by women, according to 2013 research from Catalyst. And yet, further research from Catalyst has shown that companies with more women directors perform better financially on several dimensions:

  • Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent.
  • Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent.
  • Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent.

Even though causation is difficult to prove, many other studies echo this correlation between higher numbers of women on boards and and improved financial returns. For example, there is research showing diversity help improve decision-making outcomes within groups. So what’s really holding back the appointment of more female directors? There are many factors that cause the deficit of women on corporate boards, including a preference for hiring highly experienced CEO’s and CFO’s, who are by simply virtue of the status quo, more often men. Some have also argued that women’s personal choices and discrimination (both overt and unconscious) play a role.

There is another important factor at play that prevents even the increasing numbers of women with appropriate credentials from taking positions on corporate boards: tenure.
According to a recent article in The Wall Street Journal, “At S&P 500 companies, long-tenured directors are common: thirty-six percent had served at least a decade, and more than 400 had held their seats for at least 20 years as of Oct 31.” In other words, low turnover means few board seats become available -- making it difficult to change board composition to include women and minorities.

If more activist shareholders took an interest in reducing term limits for board members, the growth in board diversity could potentially accelerate. But will an increased focus on term limits necessarily lead to more diverse boards? Just last week, for example, when activist shareholders proposed wiping out the Yahoo! board and replacing all of their directors,
just two of nine proposed directors were women -- compared to four of nine on the previous board.

One commonly discussed solution to the paucity of women on boards is some sort of quota system. For example, several European countries have
experimented with quotas or other public pressure tactics to increase female board representation. However, the efficacy of these tactics has been questioned. One study based on Norway’s quota system requiring that women comprise 40% of public company boards found that the benefits of the new law did not “trickle down” to result in more female managers at those firms or benefit similarly qualified women who were not appointed to boards. Nor did women seem to pursue business careers at any higher frequency as a result. Moreover, many women (and men) recoil at the notion of a quota because it risks tokenism and for fear of cementing unfair stereotypes and biases that women need “help” and are less-than-equally qualified for the roles.

It seems then that there are no silver bullets. When it comes to how to improve the number of women on boards, the problem not only needs to be prioritized, but also needs to be solved via multiple avenues -- board tenure is only one of them.

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What's Keeping More Women from Being on Boards?

What's Keeping More Women from Being on Boards?

What’s keeping more women from being on boards? Tenure, among other things. Just 17% of Fortune 500 board seats are held by women , accord...

What’s keeping more women from being on boards? Tenure, among other things. Just 17% of Fortune 500 board seats are held by women, according to 2013 research from Catalyst. And yet, further research from Catalyst has shown that companies with more women directors perform better financially on several dimensions:

  • Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent.
  • Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent.
  • Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent.

Even though causation is difficult to prove, many other studies echo this correlation between higher numbers of women on boards and and improved financial returns. For example, there is research showing diversity help improve decision-making outcomes within groups. So what’s really holding back the appointment of more female directors? There are many factors that cause the deficit of women on corporate boards, including a preference for hiring highly experienced CEO’s and CFO’s, who are by simply virtue of the status quo, more often men. Some have also argued that women’s personal choices and discrimination (both overt and unconscious) play a role.

There is another important factor at play that prevents even the increasing numbers of women with appropriate credentials from taking positions on corporate boards: tenure.
According to a recent article in The Wall Street Journal, “At S&P 500 companies, long-tenured directors are common: thirty-six percent had served at least a decade, and more than 400 had held their seats for at least 20 years as of Oct 31.” In other words, low turnover means few board seats become available -- making it difficult to change board composition to include women and minorities.

If more activist shareholders took an interest in reducing term limits for board members, the growth in board diversity could potentially accelerate. But will an increased focus on term limits necessarily lead to more diverse boards? Just last week, for example, when activist shareholders proposed wiping out the Yahoo! board and replacing all of their directors,
just two of nine proposed directors were women -- compared to four of nine on the previous board.

One commonly discussed solution to the paucity of women on boards is some sort of quota system. For example, several European countries have
experimented with quotas or other public pressure tactics to increase female board representation. However, the efficacy of these tactics has been questioned. One study based on Norway’s quota system requiring that women comprise 40% of public company boards found that the benefits of the new law did not “trickle down” to result in more female managers at those firms or benefit similarly qualified women who were not appointed to boards. Nor did women seem to pursue business careers at any higher frequency as a result. Moreover, many women (and men) recoil at the notion of a quota because it risks tokenism and for fear of cementing unfair stereotypes and biases that women need “help” and are less-than-equally qualified for the roles.

It seems then that there are no silver bullets. When it comes to how to improve the number of women on boards, the problem not only needs to be prioritized, but also needs to be solved via multiple avenues -- board tenure is only one of them.

Fairygodboss

Fairygodboss is committed to improving the workplace and lives of women.
Join us by reviewing your employer!
 

 

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