How to address gender inequality at board level?
Early this year, Lord Davies published his independent review into women on boards which recommended that UK listed companies in the FTSE 100 should be aiming for a minimum of 25% female board member representation by 2015.
Welcomed by many, the report made numerous recommendations to address gender inequality. Now that we are nearing the end of the year, I wonder how we are actually progressing? Many feel that increased diversity on boards would lead to a more balanced approach to decision making and counter act the homogeneity at board level that has existed for years across many parts of the world. Others feel that the women on the board is a vital corporate governance area that needs to be addressed alongside other issues such as the need for a separate chair to chief executive and transparency in remuneration.
Whilst gender inequality at board level is acknowledged as a problem there seems to have been little recent progress in closing the gap. For the last decade EIRIS has researched corporate responses to gender equality issues around the world. Our data show that 46% of UK companies listed on the FTSE All Share Index have no women on the board, whereas 15% of North American companies in the FTSE All World Developed Index have no women on the board, and in the Asia Pacific region the figure is 73%.
Stephen Alambritis, Commissioner at the Equality and Human Rights Commission, recently stated: ‘At the current rate of change it will take 73 years for women to achieve equal representation on the boards of FTSE 100 companies’.
Some countries have implemented quota systems aimed at addressing gender inequality by forcing the hands of those at the decision making level. In 2004 Norway successfully introduced quotas for female board members. By 2011 Norway had an average of 36% of women on boards. Other European countries are now looking to emulate Norway’s quota for female board members, a system which remains controversial and unpopular with some.
Isn’t it time that the issue of women on the board is not just seen as an equality issue but also as a critical component of good corporate governance?
On brief examination, education does not seem to be the main issue. Statistics published in 2010 by the Daily Telegraph in the UK saw the gender gap in achievement at ‘A’ Level at an A* grade narrow to 1.9% in favour of women – the lowest gap in 10 years, each year favouring women. In the meantime the number of women in full-time employment globally has flatlined at 53% having remained unchanged since 1991. There is continued evidence of inequality in pay across gender which is well documented.
The percentage of women at board level has changed in the UK from 8.3% in 2008 to 10.1% in 2011 with the most notable change in the EU being France which has increased from 8.3% in 2008 to 17% in 2011. The average level of women on the board during this time was 10.6% in 2008 up to 13.9% in 2011 (Getting the Right Women on Board, the 30% Club, 2011).
Are quotas the best way to close gender equality at board level? If not quotas then what else should investors do to increase gender diversity on boards? Or conversely, will inequality perpetuate without legislation? We’d be interested to hear your thoughts.
Sabine Clappaert says:
on 4 November 2011 | 10:06 am
To answer your question: how should investors tackle (gender) inequality at board level?
If there is one lesson the 2008 – 2009 banking crisis should have taught us, it is this: gender diversity impacts business performance. For too long, gender diversity was seen as workplace equality issue while in reality, its impact goes far beyond that: gender diversity is also very much a business issue.
What the financial crisis, lead by the banking world’s ‘Old Boys Club’, has shown us is that a lack of gender diversity results in a lack of diversity in thinking. Psychologists even have a name for it: groupthink.
Groupthink is a psychological phenomenon that occurs within a group of people when the desire for harmony in the group overrides a realistic appraisal of alternatives. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative ideas or viewpoints.
Research has shown that men and women have different decision-making drivers and patterns; they have different risk management profiles and set different priorities. Gender diversity within groups therefore helps to minimise the opportunity for groupthink and brings a much-needed dynamic to the group that can only benefit the decision-making process.
Should investors consider gender equality at board level? Absolutely. Gender diversity should be pinned as a key metric of long-term sustainable, profitable business.
In a Huffington Post entry titled “Want Less Risk? Hire More Women!, economist Dr. Sasha Galbraith wrote: “Several studies show a link between profit and gender. Companies with several high-ranking women at either officer or director levels tend to have higher earnings per share, return on equity and stock prices than competitors with few or no senior women.”
So does including one or two women on the board constitute gender diversity? No.
Research in to group psychology has shown that in a group of ten, it takes a minimum of three people to affect the majority opinion. Simply including one or two women on a board is not enough to neither provide a balanced perspective or to provide adequate counter weight to groupthink. Or, as the CEO of a leading multi-national told me recently: “Including a few women on a board is easy, but the true health of a company can be measured by the number of women it includes in the top tiers of its operational management.”
A lack of women in management structures implies a resistance to change and a lack of vision. More women in business is an imperative for competitiveness: not only does it expand the talent pool, it also impacts organizational excellence as well as financial performance.
Screening an investment opportunity is about judging the coherence of a business opportunity based on a set of key performance indicators. The composition and skill-set of the company board and its management team is one of them. Investors should therefore consider gender diversity as a key corporate performance indicator: no more, but also no less.