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Corporate Boards: Where Are the Women?

Lynn Blake | State Street Corporation

September 27,2017

The current state of gender diversity on corporate boards is disappointing, to say the least.

Women hold just under 20 percent of board seats at S&P 500 companies1 and 15 percent of directorships at more than 4,200 global companies surveyed by MSCI2

The gender gap persists despite a plethora of evidence that elevating more women to boards isn't just the right thing to do, it's the profitable thing to do. Studies published in the last three years by Credit Suisse and MSCI concluded that companies with female directors generated better returns than those without. Catalyst, the global nonprofit dedicated to workplace inclusion for women, delivered its own compelling case for gender diversity years before that, determining that Fortune 500 companies with more female directors were outperforming their peers as early as 20013 Such findings aren't lost on investors, including our own State Street Global Advisors, which recently voted against the reelection of board members of some 400 publicly-traded companies because the boards lacked any female representation and failed to demonstrate efforts to address the issue.

Why do companies struggle to include female directors? In some cases, they still fail to appreciate the value of and need for greater gender diversity, which can limit action or lead to complacency. Behavioral and unconscious biases are also at work. When boards search for new members, for instance, directors are often most comfortable recruiting people they know — and, gender advances in the workplace notwithstanding, men are still more likely to network with fellow male professionals than female ones. "When the majority of seats are being filled by word-of-mouth, you're naturally going to see that most [new board members] are going to look a lot like the existing directors," says Kiersten Barnet, the chair of the steering committee of the US 30% Club, an organization of chairs and CEOs dedicated to increasing the percentage of female directors on their boards and throughout their organizations. Barnet explains that even when directors do have female candidates in mind, opportunities to nominate them can be few and far between, at least in the US, where board directors typically don't face term limits and turnover is slow. Term limits are more common in Europe and have, in fact, helped contribute to greater female board representation there.

Then there is the question of what background should qualify someone to serve on a corporate board. Traditionally, directors prefer to recruit CEOs. "What we know about the ratio of male to female CEOs is that it's been disproportionately male," says Laurie Pascal, a director at Women on Boards, a program at the Harvard TH Chan School of Public Health that helps women prepare for board positions at health industry firms. "If you're only looking for people with CEO experience," Pascal says, "you already exclude a large number of very capable people who have not reached the CEO office."

So how can firms do better? Here are few recommendations:

Address bias: Recognizing that male board members may be more likely to identify and support male board candidates is the first step. Doing something about it is the second. Barnet says one solution is to hire a search firm that can help identify qualified female candidates. The downside, of course, is that search firms cost money, but it's an expense that large, publicly-traded companies can generally afford. Boards could also identify current directors as well as members of the company's management team who would excel as "diversity champions" and support initiatives to meet diversity goals. Such goals may include reducing unconscious bias not just on boards themselves but within workplace culture, which could ultimately help level the playing field among all employees, regardless of gender, and increase the likelihood of women advancing to leadership positions.

The more women attain leadership roles in organizations, the larger the pipeline for corporate boards in general.

Support and promote women within your firm and outside of it: The more women attain leadership roles in organizations, the larger the pipeline for corporate boards in general. High-ranking women can also help guide a company in further diversifying its organization — a virtuous cycle. That means each company can and should play a part in promoting more women, even if those women ultimately take board roles at other companies. Likewise, companies should encourage their members to mentor women at other firms — those mentees could someday join their boards. Through the US 30% Club’s Future Female Directors initiative, club members nominate women from their own organizations to be prepared and placed on other companies' boards. The club also runs a cross-company mentorship program.

Think outside the CEO box: Current and former CEOs aren't the only people who can add value to a board. For instance, candidates who offer strong subject matter expertise, ranging from cybersecurity to human resources, or a specific background, such as experience in international development, can help boards navigate a host of complex issues and embrace new opportunities. And while looking squarely in the C-suite, don't ignore the executive-level professionals who are a promotion away from that coveted C-role.

Add a board seat (or subtract one when necessary): To gain more female directors during a time of slow turnover, boards can expand their ranks, purposely seeking to fill new seats with women. If the objective is to increase the proportion of women on a board, boards can choose to shrink, opting not to fill the seats of retiring (male) members.

Consider nonprofit board experience: Directors at publicly-traded companies look favorably at candidates who have had experience on other boards...except in the case of nonprofit boards. Historically, those are not considered a stepping stone to the corporate board major leagues. That's unfortunate because nonprofit boards boast more female talent than for-profit boards—at the former, 45 percent of directors4 are women. Pascal says that experience on boards of large nonprofits can indeed be relevant to for-profit boards. "There's a difference between nonprofits and for-profits, no question, but there are overlapping responsibilities in terms of fiduciary responsibility, strategic responsibility, oversight of the CEO or the executive director, and setting compensation. It's great experience."

Women can improve their own chances of being appointed to boards by networking through groups like the National Association of Corporate Directors and Women Corporate Directors as well as participating in mentoring and training programs. Pascal's fellow director at the TH Chan program, Ellen Zane, is the veteran of several boards, including public company boards, private company boards, and a fund board. Zane says that despite the discouraging statistics, it pays for women to be optimistic and confident when seeking board positions. "You have to be comfortable in your own skin, and you have to be comfortable that you do bring something to the table," she says. "The cream rises over time."

But make no mistake: the brunt of responsibility for boosting female board representation lies with boards themselves. It's time for companies to stop relying on tired excuses—namely, that the pool of qualified female candidates is limited—and start recognizing that they have the power to strengthen the future pipeline of female candidates and broader searches can identify plenty of promising female candidates ready and willing to take on board positions today.  And this change will make the company stronger and improve shareholder results.  The women are out there—you just have to know where and how to look.

1. Catalyst. 2015 Catalyst Census: Women and Men Board Directors. New York: Catalyst, 2016.

2. “Women on Boards: Global Trends in Gender Diversity on Corporate Boards,” MSCI, November 2015

3. Catalyst. The Bottom Line: Corporate Performance And Women's Representation On Boards. New York: Catalyst, 2007


Topics: Diversity

Lynn Blake | State Street Corporation

Lynn Blake is an executive vice president of State Street Global Advisors (SSGA) and CIO of Global Equity Beta Solutions. She oversees a team of 70 portfolio managers globally, and more than 1,600 portfolios with assets in excess of $1.4 trillion across all equity index and smart beta strategies. Lynn also serves as a member of SSGA's Executive Management Group.