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Corporate Boards -- Still Pale, Male, and Stale

About 15 years ago, I was talking to a CEO about finding new independent directors and I suggested one possible candidate. "Oh," he said, "we already have a woman."

We haven't made much progress since then. Women make up 26 percent of the cabinet and 17 percent of the House of Representatives. So why do so many corporate boards still meet the classic description of "pale, male, and stale?"

While half of U.S. companies now have at least two women on the board according to the most recent census from Catalyst, a non-profit advocacy group for women in business, 10 percent are still all-male. A small group of women hold a disproportionate number of these board positions. And many of these directors are women whose backgrounds are in government or academia, not business. The Lehman Brothers board, for instance, included two women: an actress and a retired admiral.

Board members need to get out more
Why can't boards find women who know the difference between a 10-K and a 10b-5 to serve as directors? I guess they don't get out much.

A report by the UK's former labor minister, Lord Davies, is sharply critical of the under-representation of women on the boards of the FTSE companies (PDF link). Lord Davies found that while the percentage of women on FTSE boards had increased slightly from 9.4 in 2004 to 12.5 this year, the increase had plateaued over the last three years.

At the current rate, the report's authors calculated that it would take 70 years to achieve gender balance in the top 100 UK companies. Lord Davies explains why this is unacceptable:

When women are so under-represented on corporate boards, companies are missing out, as they are unable to draw from the widest possible range of talent. Evidence suggests that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance.
Lord Davies rejected the idea of quotas like those already in place in Spain, France and Norway, but made it clear that if companies fail to improve, government imposition of required percentages remains a possibility. The report recommends that:
All Chairmen of FTSE 350 companies should set out the percentage of women they aim to have on their boards in 2013 and 2015. FTSE 100 boards should aim for a minimum of 25% female representation by 2015 and we expect that many will achieve a higher figure.
It also suggests that companies be required to establish and disclose policies for improving board diversity.

The country with the worst record is Italy, where two-thirds of corporate boards are all-male. My firm, GovernanceMetrics International, found that a full third of the 989 companies we rate in industrial Europe lack any female board members. Only one out of 20 has more than three. Tomorrow, International Women's Day, GovernanceMetrics will release our annual report on board diversity at more than 4200 companies around the world.
The U.S. is slightly ahead, according to Catalyst:

[I]n 2010, women held 15.7 percent of board seats at Fortune 500 companies. In both 2009 and 2010, more than 50 percent of companies had at least two women board directors, yet more than 10 percent had no women serving on their boards.
But a new report from American University's Kogod School of Business shows that:
More than half of the 172 publicly traded companies in Washington, D.C. and Virginia have zero women on their corporate boards. And only six of the companies studied have three or more women in the boardroom, or a "critical mass."
Business consultant Lucy P. Marcus says that diversity of age, gender, nationality, and expertise is important at every level of a company's operations:
Healthy businesses need comprehensive diversity. Without it there is no independence of thought or action, and no way to keep in touch with the pulse of the stakeholders of today. By the same token, diversity is not a static one-time result that boards need to achieve, but one that poses a constant challenge of renewal.
Groups like Catalyst and 20/20 Women on Boards (dedicated to having 20 percent of board members be women by 2020) are working on increasing board diversity. Some welcome support is coming from those most vitally concerned with effective directors, the shareholders. CalPERS has a new director database to promote board diversity, expertise, and independence.

The future of women on boards looks promising. Women currently outnumber men in undergraduate and many graduate programs. Some day, we may need quotas to make sure boards include enough men.


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