Women in the boardroom: board diversity and corporate governance

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Women are responsible for more than 80% of consumer buying decisions. Yet the number of women in the boardroom and indeed in business generally falls very far short. We look at the issue of board diversity and representation of women on boards in the context of our holistic approach to corporate governance.


There is an on-going debate in the business world about the broad issue of gender equality regarding women in the workplace and a more rarefied debate about board diversity and women in the boardroom. However, arguably, the most important area of diversity in the boardroom is the gender one, since 50% of the world’s population is female and the representation of women in the boardroom, and indeed in business generally, falls very far short of 50%.

We at Applied Corporate Governance take a holistic approach to the definition of good corporate governance, so it seemed appropriate to consider the topics of board diversity and women’s representation on boards in that context.

Official action to date

The debate up until recently has tended to focus on the sheer apparent unfairness of women’s exclusion from the upper ranks of business. This perception follows a general process of changing customs in the western world over the past hundred years which resulted in the political emancipation of women and achievement by them of progressively more equality. Probably the biggest breakthrough was the invention of the contraceptive pill which enabled women to gain much more control over their lives.

The perception of dragging of feet by the male-dominated controlling ranks of business resulted in efforts to speed progress by regulation and threats of legislation in some countries. Hence quotas have been introduced by some governments and targets by others.

In the UK, former banker Lord Mervyn Davies produced a report for government published in 2011 recommending a target of 25% women on FTSE 100 boards within five years. In fact, his review in late 2015 reported that 26.1% had been achieved, and there were no all male boards at all in the FTSE 100 and only 15 in the FTSE 250.

The German government in 2015 introduced a law requiring the largest companies to ensure that from 2016 the supervisory boards should have 30% women, rising to 50% by 2018. Many smaller companies will also need to have set quotas for the number of women on both their supervisory boards and management boards.

Norway has had a legal requirement for 40% of board members to be women since 2003 and the current achievement is nearly 36%. Japan fares rather worse, partly due to the generally low participation of women in the workforce, with around 3% of women in the boardroom of the biggest companies.

The US has no compulsion or indeed regulatory recommendation regarding women on boards, but since the SEC in 2009 adopted the Governance Disclosure Rule, director diversity is one of the things companies are required to report on.

Are quotas helpful or not?

There is disagreement over whether compulsion is the right way forward, on the basis that it can lead to tokenism which results in at best an irrelevant contribution to governance, and at worst the deterioration of board performance by the appointment of women not equipped or suitable for the job but selected to fulfil the quota requirements. Hence Sheryl Sandberg, COO of Facebook, in disagreeing with the usefulness of quotas, was quoted as saying at the World Economic Forum at Davos in January 2016 that in Norway the requirement for boards to be 40% female hadn’t made much difference in terms of “trickle down” from the top of big companies. By way of contrast, a Chinese businesswoman who ran a property company with her husband reckoned that quotas were an effective way to break old habits and biases.

At the same conference, Canadian Prime Minister, Justin Trudeau, explained his decision to appoint a balanced cabinet of fifteen men and fifteen women by saying that he believed that politics and business should embrace feminism in the interests of improving decision making.

So the political climate is set fair, apparently, at least in the developed world, for women to advance in business and to take a proportionate role in the boardroom. Or is it?

How much progress has there been?

A survey published in early 2015 by telecoms company O2, indicated that almost a fifth of women believed it was impossible to reach a senior management role in business. And almost half thought there were still not enough women in senior positions in their company. Over a quarter, however, had the ambition to be a CEO and over a third said they would like to be on the board of a company. However, nearly a third told a sad tale of disappointment with their own career, blaming poor managers, lack of training and office politics. Even more concerning was that the successful ones all pointed to luck as a big contributor.

These elements are reflected in a global research project in 2015 by Tam O’Neill and Pilar Domingo for the Overseas Development Institute, exploring progress made by women in getting into decision-making positions in societies around the world which are at different stages of development. They say that “important drivers of women’s political power and influence include improved access to education and material assets, more equal and inclusive politics, strong women’s movements and women being effective political operators”.

So, apart from fairness, why is it important to increase women’s participation at senior levels of business and what should be done to advance this goal?

New developments

What is becoming clear from recent research is that the process to arrive at a decision  is different for men and women in ways that hold significant implications for business. For instance, though it’s not possible to prove this scientifically after the event, there is evidence that male “group think” contributed to the reckless lending policies and the dishonest
passing off of the risks through complex derivatives, which led to the crash of 2008. Indeed, IMF chief, Christine Lagarde, famously said that if Lehman Brothers had been Lehman Sisters the results would have been very different.

More specifically, Daniel Roberts writing for Maple Leaf in early 2015, quotes a Goldman Sachs woman partner in the trading business (a rare animal) as saying that the emotional intelligence which she brings to her job as a Greek woman, causes her to listen more and talk less than the men and that a better male/female balance makes good business sense. Mr Roberts also quotes the (female) head of retail banking at Lloyds Bank as believing that women are better at conflict management, empathy, self awareness and collegiateness. This was echoed by the respected CEO of Newton Investment Management, Helena Morrissey, in a lecture at Cass Business School in February 2016, quoting from her own experience, developing her career as a lone woman in a man’s world. As she progressed, she found that an invaluable part of what she could successfully bring to her new management roles was indeed those same skills.

A study published several years ago by the International Journal of Business Governance and Ethics surveyed 600 directors (75% of them male) regarding the way men and women approached the task of making corporate decisions found significant differences. Men were inclined to follow tradition, rules and regulations, whereas women weren’t so bound by tradition and looked at the wider stakeholder interests, being more enquiring and open-minded.

The chairman and CEO of Holsman International, an investment and management company, Henrietta Fore, is quoted by Daniel Roberts as saying

‘Men are more concerned about strong internal controls, keeping up with the new regulatory environments and good corporate governance processes….Women, on the other hand, are particularly concerned with succession, growing the senior staff and sustainable shared value, and this tends to lead to good governance… A more diverse board can drive performance levels while expanding the thinking of the boardroom outside a very company-centred mind-set.’

In 2014, a training company, Financial Skills, specialising in real time trading simulation software, showed that in training exercises female traders lost less money than male traders and were much less likely to break the bank’s rules. The COO, David Hesketh was quoted as saying that in future banks won’t be ticking a diversity box for politically correct reasons but because it is the way to create a more profitable and less risky business. Another study from a financial services firm, Rothstein Kass, apparently showed that female hedge fund managers significantly out-performed their male colleagues.

The potential for trade

Finally, of course, there is the demographic dimension. A study published in September 2015 by the McKinsey Global Institute proposed that £12 trillion could be added to the world’s GDP by advancing women’s equality. It made the point that women comprise half the world’s population and if their potential in all the regions was improved so that all countries matched the rate of improvement of that of the fastest-improving country in their region, as much as $12 trillion could be added to the annual 2025 GDP. In a “full potential” scenario in which women play an identical role in labour markets to that of men, as much as $28 trillion could be added to global GDP by 2025.

The point here is that women understand women better than men do and women represent the vast majority of customers. Statistics show that women make more than 80% of consumer buying decisions and are responsible for 65% of spending.

So increasing the proportion of women in senior management and on boards would seem to make logical commercial sense and the political correctness dimension seems an irrelevant distraction.

How does more women in the boardroom fit into our 5 golden rules?

The implementation of an appropriate gender balance would, at a practical level, fall under our fourth rule of good corporate governance, namely: an organisation structured and resourced to achieve the agreed goal of the key stakeholders.

Hence we would be looking at the issue of the effectiveness of the board in carrying out its role and the degree to which women are appropriately represented in the ranks of senior and middle management. Also very important is the selection process, training programme and mentoring to bring on the next generation of senior women managers and directors.

So, in terms of board diversity and considering the issue of women in governance, let’s look at the role of the board:

In summary, the board’s role is to:

  • decide policy
  • appoint the right person as chief executive
  • monitor progress
  • change either policy or the chief executive if appropriate.

Hence, in the light of the conclusions above, an appropriate input from women on the board in each of these four elements in a typical company operating in most conceivable markets would seem the merest common sense.

Looking at the question against our Five Golden Rules:

  • an ethical approach which is in tune with the societies and cultures in which a company operates
  • balanced objectives which fulfil the goals of all the key stakeholders
  • strategic management rather than opportunism or clientelism driving the policy and decision-making process approach
  • an organisation structured and resourced to deliver the strategic plan
  • a culture of accountability and transparency to all stakeholders.

From an overall, holistic perspective, the impact of a significant female input at senior and top levels in a company is likely to have most impact in the three areas of

  • Goal: representing properly the interests of the 50% of the stakeholder groups made up of women
  • Strategy: reflecting particularly the interests of the customers and employees who are women
  • Organisation: giving it the appropriate resources to deal most satisfactorily with the customers, employees, suppliers etc who are women.

So we would give our full support to the efforts of women such as Helena Morrissey in a long term programme to bring companies large and small to recognise the business logic of grooming women for senior and top management and executive directorships on boards through properly planned selection, training and mentoring programmes.


From the archive: one sector with a healthy level of women in the boardroom is in social enterprise. Click here for an article which asked “Is Corporate Social Responsibility Dead?

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