Gender Diversity on Boards & Why it Matters
A diverse board of directors brings a range of perspectives and talent that synergizes the board as a whole entity. Many important discussions take place on boards. It’s the differing perspectives of board members that lessen the potential for group think and lead to well-rounded decisions.
While the United States tends to take the lead regarding most things, it lags sorely behind when it comes to giving women a fair shot at landing a seat on a board of directors. Other countries have seen positive effects as they’ve increased the number of women on their boards. The number of women on boards is slowly and steadily increasing in the U.S., but the growth rate is still slower than other countries. While boards and investors are collectively pushing efforts toward greater gender diversity, the U.S. is a long way away from true gender parity.
Comparing Gender Diversity Globally
Around the world, groups are setting targets to increase the number of women that serve on boards from 20% on the low end, to 40% on the high end. Many countries are trending towards mandating an increase of the number of women that serve on boards. Malaysia and Germany have mandates for 30% of female representation, whereas, Iceland, Norway and France have mandates for 40% of female representation. Norway was the first country to implement mandatory quotas in 2008. The adjustment was not initially well-received; however, support for the mandate increased as corporations began to reap the benefits of women leadership.
The 2020 Gender Diversity Index reports that larger U.S. companies and larger boards are trending towards having greater gender diversity than smaller companies and smaller boards. The report shows that Fortune 1000 companies have 17.9% female board representation, Fortune 500 companies have 19.7% female representation, and Fortune 100 company directors have 22.3% female board representation.
A Catalyst study also showed some telling statistics regarding women of color that serve on boards. It’s a myth that Asian, African-American, and Latina are in high demand on boards of directors. Women of color make up less than 3% of boards of Fortune 500 companies; yet women of color were twice as likely to serve on multiple boards. The study supports the notion that existing boards are hesitant to add women of color because of their lack of experience serving on other boards. Women of color have not yet been given the opportunity to prove themselves.
Does Gender Diversity Improve Results? A Few Board Diversity Statistics
In a word. Yes.
A Catalyst study showed that companies with the most women board directors perform better than boards with the least women board directors by 16%. The same report also showed that companies with the most women board directors showed a return on invested capital of 26% greater than boards with less women directors. Moreover, the study showed that companies that had three or more women board directors in at least four of five years had a higher rate of return on sales by 84%, a higher rate of return on invested capital by 60%, and a higher rate of return on equity of 46%.
A Credit Suisse Research Institute study yielded similar results, stating that in the six years prior to the study, companies with at least some female board members outperformed those with no female board members, as measured by share price performance.
Gender Diversity Brings Assets to the Board
Why is it that a stronger balance of female board members increases a corporation’s productivity and profitability? The answer to this question is subjective to say the least; however, the 2020 Gender Diversity Campaign and the Credit Suisse Research Institute offer their theories.
The 2020 Gender Diversity Campaign lists the following attributes that women bring to boards:
- Diversity of thought which leads to better decision-making
- Stakeholder representation that better represents shareholders, employees, and customers
- Competitive advantage that keeps up with the pace of change in the marketplace
- Availability of essential skills that includes industry knowledge, operational experience, and functional expertise
Credit Suisse cites a few more positive influences that women board members contribute including:
- A signal of a better company-adding women to the board means the company is already doing well
- Greater effort across the board leads to better overall performance
- A better mix of leadership skills-women are better at defining responsibilities, mentoring, and coaching
- Access to wider talent pool as the number or females that graduate from college increases
- Better reflection of the consumer decision-making because women take the most responsibility for household decision-making
- Improved corporate governance as supported by strong research
There is no question that women are vastly under-represented in board rooms globally, but especially in the U.S. The statistics for women of color are abysmal at best. On the surface, it appears that corporations are beginning to wake up to the idea of increasing the percentages of women board members, though the U.S. currently trails the rest of the world.
Corporations only need to look at the facts to understand that greater gender diversity sets the stage for solid corporate governance and proven financial results. As investors and consumers lend pressure to increase gender diversity on boards, the U.S. may actually reach the 2020 Gender Diversity’s goal of having 20% of women board members by the year 2020.