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Board Diversity Focus: Gender Diversity

October 17, 2017

Board Meeting Room

As the push for greater board diversity takes center stage, the path to achieving that goal has become an important issue for the boardroom. While board gender diversity can still improve, there have been considerable advances in this area.

Benefits of Board Gender Diversity 

The U.S. is currently lagging behind other countries when it comes to board gender diversity. Women hold 19 percent of board positions in the U.S., while in countries like France, Norway, and Sweden, women hold more than 30 percent of positions. This is somewhat surprising, because research and analysis suggest that boards with more gender diversity achieve better performance and higher returns.  

A McKinsey study found that companies ranking in the top quartile for gender diversity are 15 percent more likely to have financial returns above their national industry medians. Data from Bloomberg also indicates: 

  • Boards and other leadership panels with 50 percent women think more critically
  • Group dynamics tend to change when both sexes are present
  • Board diversity can help attract more talented and motivated employees
  • Diverse groups may be better at problem solving than homogenous ones, as men and women may monitor each other’s performance and input more rigorously
  • Boards with greater diversity better understand the perspectives of stakeholders, consumers, and employees

Improving gender diversity for boards is not simply a matter of appearance. Rather, gender diversity may be critical to financial performance, governance, and markers of organizational success. Companies in the retail sector can benefit strongly from increased board gender diversity, as women comprise more than half of all global purchasers. 

Disclosure of Board Gender Diversity Information

The majority of large companies list both gender and racial diversity as key factors when selecting new directors. However, fewer than half are willing to disclose information that would show whether they are succeeding on the gender diversity front. 

Equilar conducted a detailed analysis of regulatory filings for 500 of the largest U.S.-listed public companies. According to the data, only about 45 percent of companies disclose the gender of their directors. Furthermore, there are no clear existing standards for how companies should disclose such information.  

For instance, some companies disclose diversity information for their entire board, while others only provide information on individual directors. Information is often presented in the form of graphs and charts, which can make it difficult to parse information by specific factors. Introducing disclosure standards for gender diversity and other diversity factors may help boards to diversify. 

Recognizing the need for greater disclosure of board diversity information, New York City Comptroller Scott M. Stringer and the New York City Pension Funds recently launched “Boardroom Accountability Project 2.0.” 

The project calls on the boards of 151 U.S. companies to disclose the gender and race of their directors, as well as members’ skills. The groundbreaking initiative also introduces a standardized “matrix” format for reporting the information, which will increase the transparency level of boards and push them to be more diverse and independent. 

The program also implores companies to discuss processes for adding and replacing board members (“board refreshment”) with the Comptroller’s office. This level of detailed reporting and discussion may serve as a model to help organizations make more impactful board decisions.

Steps Toward Improving Gender Diversity in the Boardroom

In order to benefit from increased representation of women, businesses should adopt practices that enhance the gender diversity of their boards. Some steps to implement include:

  • Make commitments to diversity that are visible both throughout the organization and externally with transparent reporting
  • Ensure that candidate lists are diverse from the outset
  • Look beyond current or former CEOs and C-suite execs to include candidates in other spheres such as academia, law, and other sectors
  • Foster lasting relationships with potential candidates, which can help companies build a foundation of diversity long-term

Companies that rely on a traditional list of personal networks for director candidates run the risk of perpetuating a lack of board gender diversity. On the other hand, the use of search firms may produce board candidates who may be highly qualified, but are not particularly suited to the culture or personal dynamics of the board. Organizations should seek a balance of diverse candidates who have the right mix of prior board experience and expertise. This is especially important for candidates who may be transplants to the region.

What Board Gender Diversity Means for the Future

In order for shareholders to effectively exercise their voices, they need to know important information about their company’s directors that is not always accessible. Shareholders also need to understand how each director’s skill set and career background complement  the company’s overall aims and strategies. This will produce more effective board refreshment in the long run. 

Transparency in reporting board composition can strengthen board oversight and nurture more meaningful engagement with shareholders, which will ultimately help to secure sustainable value for investors. 

At Kessler Topaz, we work closely with corporate governance experts and other advocates to positively impact board composition and function. We have assisted our clients in implementing creative, effective changes in areas such as director nominations and selections, election procedures, and succession planning. 

Board composition is a complex matter that can have far-reaching effects on organizational performance. If you have any questions or concerns regarding board diversity, corporate governance, or other matters, contact us today at Kessler Topaz.