March 22, 2017

Board Gender Diversity: Good for Business

This blog from “The Conference Board” reports the results of a recent study on the impact of gender diversity on boards.  Here’s a summary of the conclusions:

Among the findings in the report, the authors concluded that the real value of adding women to boards came not from their gender per se, but from the fact that they were more likely to be outsiders. They were also more likely to be foreigners, have expertise in more diverse business issues and functions than their male counterparts, and to have risen through the ranks outside the traditional elite networks. The authors conclude that bringing these different perspectives can substantively improve the collective decision-making of a board.

The conclusions are based primarily on interviews with directors & stakeholders of French companies conducted after France instituted a gender quota system for public company boards.

Gender Quotas on Boards?

Did that last sentence catch you off-guard?  Me too – but I’ve recently learned that board gender quotas are actually pretty common in Europe.  These quotas have been implemented through legal mandates (Germany, France, Belgium, Iceland, & Italy) or through the establishment of voluntary goals (Austria, Finland, the Netherlands, Spain, Sweden, & the UK).  The quotas range from 25 to 40% of the board.

This Harvard Business Review article reports that quotas are popular among directors in countries where they’ve been implemented, but despised among directors in countries where they haven’t.  That most definitely includes the good ol’ US of A:

One male director said that, with regards to quotas; “I think it is dumb and destructive — demeaning to people who are only on the board because they are in a specific category.” Female directors also expressed doubts. “No one wants to be a second-class citizen,” said one, explaining that she would not want to be on a board that had been mandated to have a female member. “Quotas are just anathema in the U.S. — I don’t think we will ever see quotas here,” said another.

The willingness of European countries to force the issue through quotas has left the US as a laggard when it comes to the representation of women on boards.  The article points out that women comprise only 18.7% of board members at S&P 500 companies.  This figure hasn’t moved much in the last decade, and it pales in comparison to the figures in most of Europe.

“Just Vote No”: State Street’s Alternative to Quotas

Many people will likely agree with the sentiments expressed by US directors of both genders – there’s something about the word “quota” that’s deeply offensive to American ears.  So what’s the alternative for getting more women on corporate boards?  State Street Global Advisors has an idea of its own – it’s giving 3,500 US public companies a year to get their act together and make tangible progress on gender diversity at the board level.

State Street’s initiative includes prescriptive guidance intended to “drive greater board gender diversity through active dialogue and engagement with company and board leadership.” It’s also giving companies a potentially significant downside:

In the event that a company fails to take action to increase the number of women on its board, SSGA will use proxy voting power to influence change – voting against the chair of the board’s nominating and/or governance committee if necessary.

The 3,500 companies in which State Street invests represent $30 trillion in market value.  Coupled with BlackRock’s decision to make gender diversity an engagement priority, this is an initiative that could well move the needle.

John Jenkins