Trade Forum Features

Women on boards: A corporate necessity

2 July 2012
ITC News

When Facebook announced it was preparing an initial public offering, a lengthy Wall Street Journal editorial asked a crucial question: Since women are the majority of social media users, why are all the members of Facebook’s board of directors men? It is a question relevant to most corporations in the United States, the largest economy in the world. Despite women being equal stakeholders in the US economy — as 50% of its workers, 80% of its consumers, 40.4% of small business owners and 40% of its investors, either directly or through pension funds — the percentage of women directors has only recently reached 16%.

Over the past decade, European companies also admitted few women onto their corporate boards, until some European governments decided to take more proactive steps through quotas — legislative mandates requiring a percentage of seats to be held by women. Norway triggered this quota wave when it passed a law in 2003 requiring all companies listed on the stock exchange to allocate 40% of board seats to women. Companies that did not comply would be dissolved. The result: the quota was reached by all affected companies. There was no cataclysmic disruption of the market, as feared by some, given the simultaneous change in board composition across the country. Qualified women directors were found through databanks formed by the government and other business associations, even though many CEOs stated early on that there would be few to find. Most importantly, gender diversity on corporate boards is no longer a topic of discussion. According to one Norwegian director: ‘We have gone past it.’

That Norway succeeded in this ‘corporate engineering’ was an important propellant for other countries to follow suit. Quotas for women directors have since been imposed on companies in Spain, Iceland, France, the Netherlands, Belgium and Italy. The list is even longer when countries with quotas for government-owned companies are included, as is the case in Israel, South Africa, Denmark, Finland, Ireland and, recently, Austria. Germany does not yet have a federal quota, but Berlin and Nuremberg do for companies based in those cities, or in which the city has equity. Canada also has not been able to pass a quota legislation, but the province of Quebec has a quota in place for government-owned companies based there. The quota strategy has leapt to other regions as well: Malaysia’s Prime Minister issued an executive order in 2011 mandating that 30% of board seats be allocated to women, the first Asian country to do so.

‘Quotas are a shock to the system. Without them, change for women will take a very long time,’ says Michel Landel, CEO of Sodexo in France. The word ‘quota’, however, continues to have negative connotations. Often, it assumes bringing in unqualified, incompetent people just to fill the seats. To test this assumption, Corporate Women Directors International (CWDI) examined the backgrounds of the 113 women appointed to board seats in France in 2009, when the quota legislation first passed the lower house of parliament. CWDI found that the overwhelming majority (67%) of women named directors were seasoned corporate executives, and the rest were professionals and owners of large enterprises. All had excelled in their respective field. As a result of its quota legislation, France leapt from having only 7.2% women directors, where it was stuck for many years, to 20.1% in 2011, a rate of increase that would not have been possible before.

During these critical economic times, no company can afford to have an unqualified person on its board, whether male or female. Quotas allow women to enter the boardroom, but they still have to perform like all the other directors. The long-term result will be a base of experienced women directors, so no one can ever say that there is not a big enough pool to draw from. The other result, hopefully, will be better financial results for companies. There is a plethora of research from the United States, Europe and emerging economies such as Viet Nam and Turkey that shows a strong correlation between companies with more women board-level directors and senior managers, and better financial performance based on several metrics. According to McKinsey, this argument is accepted by 65% of senior executives, but only 29% act on it. For many companies, gender diversity is not part of their business strategy.

Despite these findings, the reality is that the inflow of more women to corporate boards, especially in Europe where this strategy dominates, will change the face of corporate leadership in the future. Although it is too soon to tell what the ultimate result will be, it is hoped that the addition of women will create more stable companies and, consequently, a more stable global economy.