In building the case for women in business, we often focus on the percentage of Fortune 500 senior management positions held by women, and on business school as a pipeline to senior leadership. But corporations are governed by boards of directors who yield great influence on business strategy and development, making the persistent under-representation of women at that level a notable barrier to equality of influence in the business world.
In fact, women are under-represented at the board level even more so than in the C-suite, and top corporations and researchers are taking note.
This year, Forté collaborated with its business school and corporate partners to advance a growing movement focused on women reaching at least 20% representation on corporate boards by the year 2020.
With that in mind, we turn our focus in this newsletter to the challenge of evolving corporate boards toward greater diversity. We spoke with women like Donna Hamlin, CEO of Intrabond Capital Corporation and a leader in board governance improvement; Diana Taylor, who sits on the boards of Citigroup, Brookfield Asset Management, and Sotheby’s; and Joyce Roché, a tenured executive who now sits on several Fortune 500 boards including Macy’s. They have a lot to say about the role of a board member, what it’s like to be one of the only women in the room, and what you can do to ready yourself for board participation during the course of your career.
We are in good company in paying attention to this problem. Numerous studies around board diversity have come out in the past year. To cite just one example, a study by the Committee for Economic Development (CED), an independent think tank in Washington D.C., asks whether the “merit selection” process for board membership “works as it should” and posits that “very little has changed during the past decade” in terms of gender equity at the board level. Another 2012 study by UC Davis Graduate School of Management emphasizes that amongst California corporations, half of the state’s largest public companies have no women at all on their boards of directors.
Why it matters to the bottom line
The research reveals not only the shape of the problem, but its consequence for business performance. Credit Suisse Research issued an August 2012 report that states definitively: “Companies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples during the course of the last six years.”
Their high-level summary is crystal clear, and speaks directly to investors about where they are putting their money: “In testing the performance of 2,360 companies globally over the last six years, our analysis shows that it would have been better to have invested in corporates with women on their management boards than in those without.”
The CED study is forthright in equating gender diversity with progress: “The situation for the United States is urgent, as other countries move ahead with numerous efforts to provide women with greater access to board membership and other opportunities for advancement.” That statement alludes to the fact that in Europe, the issue of board diversity is taken so seriously that quotas have been put in place in some countries. Norway enforces strong penalties for not achieving a 40% quota; France takes a lighter approach, encouraging gradual compliance.
However you approach it, the message is clear. Business and political leaders must take note that something needs to change.
Building candidacy through time
The CED report notes that nominating committees often cite the lack of women in the pipeline as the top reason for the under-representation of women on corporate boards. To qualify for board service, a candidate must have C-level experience. So there’s a chain reaction: women are a minority in business schools, and an even smaller minority amongst senior corporate management. By the time you reach the level of board candidacy, the number of female candidates has shrunk even more.
Diana Taylor underscores this point: “There are not a lot of women in senior management positions running companies, and the ones who are don’t have time to be on a lot of boards. I’d love to see more women on boards. I head the nominating and governance committee at Citigroup and we spend a lot of time recruiting women. We now have 3 out of twelve.”
Getting that MBA, building a career over time, achieving c-level management experience and cultivating a network are all part of the equation, and the planning process starts early.
Understanding the role of a board member
To perform as a board member, one must also understand how this role differs from that of an executive in a company.
One common misconception is that the board directs the activities of an organization. In truth, Donna Hamlin explains, the board may only meet four to six times a year, and is not expected to direct day-to-day operations; that’s the job of the executives who manage the company. Joyce Roché puts it this way: “You are an independent, not an insider, as a board member. One of the most important things that the board does is to hire the CEO. Once you select the right person, you hand over management and expect them to run the company. Your role is to shape strategy, to provide oversight, and to concentrate on governance.”
Diana Taylor notes that despite the clarity of seasoned board members around their role and responsibility, external forces are complicating the role of a board member and the level of involvement and accountability that board participation brings with it. “On the board of a financial institution, especially one that took TARP money, regulators have been vocal about what they want boards to do and how involved they want boards to be in the management of a company. Boards don’t manage – they oversee strategy and big picture perspective. But boards at financial institutions are being asked to be a lot more involved in how the institutions run. So there is tension there. It’s something everyone is wrestling with,” says Diana Taylor.
What can you do to be board-ready?
Donna Hamlin offers a checklist for women who want to ready themselves for a board appointment:
- Have a clean background check, without bankruptcies
- Gain C-level experience
- Obtain a professional certification for board service
- Have a strong command of P&Ls
- Be financially independent, as board fees are not typically enough to live on
- Be sure that you can contribute sufficient time to board work
- Know your personal style and where you fit in a group
As you rise in your career, you may have the opportunity to observe and learn from early interactions with the board of directors at your own company. Joyce Roché got her first taste of board leadership when she was invited to present to the board at Avon, where she served as senior marketing officer. Such exposure can be a valuable opportunity to see firsthand how board dynamics operate.
Diana Taylor notes that, for her, board experience started in the non-profit sector. Today she chairs the boards of non-profits ACCION International, the Hudson River Park Trust, the New York Women’s Foundation, and the YMCA of Greater New York. “Although my career was in the for-profit world, I started doing board work in the not-for-profit sector. The non-profit boards I’m on now focus on governance, finance, and risk — elements that corporate boards are looking at, too. In fact, more and more, not-for-profit boards are supposed to behave like corporate boards in terms of governance, disclosure and risk management,” she says. “On a non-profit board, you experience that collegiality of a board, but also that expectation that you’re going to bring a certain expertise and be willing to challenge people.”
But Donna Hamlin cautions against mistaking non-profit board service for a direct conduit to corporate board appointments, although she emphasizes that such service can be enormously valuable for a host of other reasons. She says, “Non-profit boards need someone who isn’t afraid of asking for money, and who brings a certain competency to help the non-profit organization with operations. Non-profits run lean, and need a lot of hands-on help that you otherwise would not expect to see from board members.” Donna Hamlin noted that serving on an advisory board or an ad hoc “kitchen cabinet” to a CEO can be good or better preparation for the objectivity and advisory ability required of a board member.
Still think it’s worth it?
Although there is a formidable level of personal accountability and responsibility, serving on a corporate board can be highly rewarding. You can build an invaluable network, add new business skills, and gain increased exposure to business leaders outside of your industry. But, “you have to care deeply about wanting to help an organization do well, and do wisely,” says Donna Hamlin. “It’s a personal choice about where you want to add value. In today’s climate, your willingness to put yourself under a very hot light has to be weighted carefully. But it’s incredibly fulfilling if you have the time and orientation to make a difference at the level of board directorship. A board strengthens an organization’s strategy, and can help hit it out of the park. That can be very rewarding, because you’ve made a difference for all shareholders, stakeholders and – often –society.”
Diana Taylor seconds that notion: “If you’re going on a board for the money, don’t do it!” she says, laughing. “I love the people on the boards on which I serve. I think they’re highly competent. And I learn a lot about business!”
For resources related to gender diversity on corporate boards, and how you can position yourself for board leadership in the future, visit our Women on Boards website.