Momentum Builds For More Women On Boards

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By Russ Banham


For the first time in history, all-male boards of directors are going the way of the buggywhip, as more and more companies not only sit women on their boards but continue to increase their number. 

Before breaking out the champagne, bear in mind that it has taken years and years for women to sit alongside men in their boardroom oversight of companies. Even today, women make up 47% of the working population, according to the U.S. Department of Labor, but they represent only 27% of board positions of S&P 500 companies, according to data from ISS Analytics as reported by the Washington Post.

While progress has been steady for women and people of color to become directors, most boards remain populated primarily by white men aged 50 and older. To more rapidly alter the status quo of board gender, several states have proposed laws requiring public companies to appoint at least two women to their boards or to provide publicly available demographic data on the board’s composition.

Launching this mini-revolution, not surprisingly, is the state of California. In one of his last acts leading the state, Governor Jerry Brown signed a bill (SB 826) requiring publicly held companies headquartered in the state to have a minimum of one woman on their boards by the end of 2019. By the end of 2021, the legislation requires the companies to appoint at least two women on boards of five members and three women on boards of six people or more.

“It’s unfortunate that California had to legislate giving equal opportunity on boards to the 52% of the population who are women, but the alternative of simply waiting for companies to catch up to reality was no longer tenable,” said Kellie McElhaney, a professor and the founder of the Center for Equity Gender and Leadership at the University of California-Berkeley Haas School of Business.

Prior to the legislation’s signing in October 2018, the 84.5% of director seats on the boards of 632 California companies were men, according to Women on Boards of Public Companies Headquartered in California, a 2018 report authored by Annalisa Barrett, senior advisor at the KPMG Board Leadership Center and an advisor to board directors on emerging trends in corporate governance. She noted that nearly one-third of California companies had all-male boards and a meager 1% of California boards had attained gender parity.

Following California’s lead, Illinois, New York, Michigan, New Jersey, Pennsylvania, and Maryland have endorsed legislation with similar intent. The bills of New Jersey, Pennsylvania and Michigan are near duplicates of the legislation in California. New York and Maryland took a different tack, seeking amendments to state filing requirements to collect more data on board gender diversity. This data would then be made publicly available.

The Illinois bill initially went further than California’s legislation, calling for at least one woman and one African American to serve on the boards of publicly traded companies. Following a backlash by the state’s business interests and several boards with directors of diverse backgrounds, the bill was modified and signed by Governor J.B. Pritzker in August 2019 to require publicly traded companies to disclose the demographics of their boards in their annual reports.

“Mandatory disclosure often leads to change in corporate practices,” Barrett said. “The thinking is that shareholders, employees, customers and the media, once apprised of the board demographics, will make decisions based on this information.”

A company disclosed to have an all-male board may be an inducement to customers to boycott its products and shareholders to curtail their investments or not support directors up for election, compelling the appointment of women board directors. “While not directly forcing companies to retain women directors, the legislation may achieve similar aims,” Barrett said.

Institutional investors have long made their opposition to homogenous boards known in their proxy votes, as have proxy advisory firms Glass Lewis and ISS. Both firms provide data, ratings and advisory services on public company ESG (environmental, social and governance) policies to assist clients in their board voting and investment risk management decisions. However, without the big stick of government, many companies resist tampering with their current board composition.

Regrettably, boards that take this position may be harming the shareholder value of the companies they serve. “Multiple research studies have concluded that more diverse boards make better decisions, particularly about issues that matter to investors, employees and customers,” said Barrett. “These studies tend to focus on board gender diversity as opposed to other forms of diversity, since that’s where much of the data resides for research purposes.”

Slow To Grow

At present, the US Securities and Exchange Commission does not require companies to provide demographic data indicating the race, ethnicity, age, and gender of board directors. However, the biographies of board directors included in the proxy statements inherently include the use of pronouns, offering insight into each director’s gender. Researchers can correlate this data with the organization’s financial results to generate insights into aspects of its performance.

McElhaney at Berkeley conducted such a study. “We looked for correlations between board gender composition and positive ESG performance,” she said. “We found that companies with one or more women on their boards were likelier to have much better ESG practices.”

In the study, “Women Create a Sustainable Future,” sponsored by KPMG and Women Corporate Directors, McElhaney and coauthor Sanaz Mobasseri examined a large data set of Fortune 1500 companies. These organizations were grouped according to their board gender composition (68% had at least one female director) and then analyzed in terms of their specific ESG actions.

Environmental criteria included steps taken by a company to improve the energy efficiency of its operations, reduce carbon emissions, decrease packaging materials, and invest in renewable power generation. Social factors included healthcare access for underserved populations across supply chains, strong employment benefits and products that improve health outcomes. Governance matters involved actions to prevent corruption, improve accounting accuracy, and increase the transparency and disclosure of the company’s business practices.

After these data sets were correlated with the board composition of the Fortune 1500 companies, the researchers discovered that boards that are composed mostly of men take far fewer actions on ESG issues. “The boards with at least three female members had better ESG performance than those with fewer women on the board and especially those without any women at all,” McElhaney said.

She cautioned that the study is correlative and not causative. Causation indicates that one event is the result of another event’s occurrence, whereas a correlation between two variables does not necessarily mean the change in one variable is the cause of changes in the value of the other variable. “Nevertheless, I’m one hundred percent convinced that board diversity will lead to companies doing well by doing good,” said McElhaney, whose father, Harold “Mack” McElhaney, was one of the authors of Title IX federal civil rights legislation. 

Asked why women might take ESG more seriously than men, she speculated that women tend to ask different questions of management than men typically ask. “Our research indicates that women generally come more prepared [than men] to board meetings, having done all the pre-reads, which results in different lines of questioning,” she said. “Women also are choosier when it comes to the boards they’ll serve, preferring companies that have strong ESG policies.”

Down the line, as more data is available about the demographics of corporate directors and the business value of having women and other members of diverse groups of people as directors, greater parity may be in the offing. Without diverse representation in all its forms on boards, companies will squander the creative ideas and market innovations that arise when many different brains deliberate and make important decisions, such as those made in corporate boardrooms.

Russ Banham is a Pulitzer-nominated financial journalist and best-selling author.

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