Women make up nearly half the UK workforce, but these statistics aren’t reflected at corporate board level of companies – and it’s a similar story in the United States.
However, last year proved to be a dramatic year for women on the boards of the FTSE 100. The percentage of female-held directorships on FTSE-100 boards leapt from 12.4 per cent to 17.4 per cent, in the 18 months following the publication of the government-sponsored Davies Report. The government stepped away from introducing mandatory quotas for women and opted instead for proposals by former banker Lord Davies that 25 per cent of all boardroom seats in the FTSE 100 should be held by women by 2015.
The Davies Report cited evidence that companies with more women on the board had a 42 per cent higher return on sales, a 66 per cent higher return on invested capital and a 53 per cent higher return on equity. Employing talented women is no longer just seen as the right thing to do in terms of merit, but also the rational thing to do if you are interested in improving your bottom line.
In the US, the consultancy Catalyst analysed data from its annual Fortune-500 census of women board directors for the years 2005-2009. It revealed that companies with the most female directors outperformed those with the least by 16 per cent in terms of return on sales and by 26 per cent when it came to return on invested capital.
When you get diversity of thought and experience, it makes it easier for board members to challenge the decision-making process
“We’ve looked at the relationship between women in senior executive roles and on the board of directors at Fortune 500 companies, and in both cases, there is a strong correlation between women in leadership and financial performance,” says Deborah Gillis, chief operating officer at Catalyst.
She points out that gender diversity on the board will yield better results as it’s more reflective of the customer base. “I think it’s really important in today’s market and environment that leadership of organisations reflects the markets they’re serving,” says Ms Gillis. “We also see from our research that more women on the board of directors is a predictor of more women in leadership positions in management.”
Women on the board also have an impact on share price performance, according to a Credit Suisse report on gender diversity and corporate performance. The study compared the share price performance of companies with more than £10-billion market capitalisation, and looked at the performance of companies with women on the boards and no women on the board. The results demonstrated superior share price performance for the companies with one or more women on the board.
Gender diversity brings a whole range of advantages for organisations beyond the direct impact on financial performance for their shareholder, employees and customers, says Ines Wichert, senior psychologist at Kenexa High Performance Institute. “Gender diversity enables different value sets to be brought to an organisation and can challenge decision-making on the board,” says Dr Wichert.
Research shows that increasing the number of women on the board improves governance. A 2002 study of Canadian companies, Not Just the Right Thing… But the “Bright” Thing, by David and Debra Brown with Vanessa Anastasopoulos, revealed that boards with three or more women performed much better in terms of governance than companies with all-male boards. The study also found that the more gender-diverse boards were more likely to focus on clear communication to employees, to prioritise customer satisfaction, and to consider diversity and corporate social responsibility.
Gender-diverse boards are more likely to take on new corporate governance measures much more quickly than boards that are homogenous, says Ruth Sealy, deputy director of the International Centre for Women Leaders at Cranfield School of Management. “Calls for diverse boards have been prompted by the perception that the global financial crisis was caused by homogenous boards, which were too similar in viewpoints, and it was very difficult for individuals to challenge and question decisions,” says Dr Sealy. “When you get diversity of thought and experience, it makes it easier for board members to challenge the decision-making process.”
Catalyst research has also shown a link between the number of women on the board and improved financial performance. Its analysis of Fortune-500 companies with three or more women on the board revealed that they significantly outperform those with sustained low representation of women in terms of return on share price, return on invested capital and return on equity.
Dr Wichert interviewed senior female board members of FTSE-250 firms who expressed relief at having two more women join the board at the same time. “Many of these women said that bringing in two women at the same time made it easier for them to be heard in the boardroom rather than sitting on a white, male board,” she says, adding that two women on the board were often viewed as a “minority group”.
“But when you get to three women, then gender doesn’t matter and they are viewed as experts,” Dr Wichert says. “It’s then all about their skills, knowledge and qualities.”
Although the pace of change has been relatively rapid since the publication of the Davies report, it’s no time for organisations to be complacent. Much of the progress for women has been made in non-executive director roles in FTSE-100 firms, whereas female representation in the more powerful executive director posts has remained static at 6.6 per cent, according to the Cranfield School of Management.
A number of FTSE-100 firms are implementing programmes, such as mentoring and coaching talented women. However, more needs to be done by organisations, says Dr Wichert. “Organisations need to keep data on where the women are in their organisation, and why and at what level they are leaving the organisation. So many organisations don’t have this data on women.”
The focus of many FTSE-100 firms is now turning to boosting the number of women in executive director roles, adds Dr Sealy. “In the last six to twelve months, we’ve seen a lot more focus being placed on developing the pipeline of female executive directors. Some of the better companies are putting policies and targets in place for senior management positions.”
In the end, businesses ignore talented women at their own peril, concludes Ms Gillis. “It doesn’t make any sense that a business looking to build up the most successful company in their industry and focus on expanding into emerging markets is only drawing on half the talent pool.”
CASE STUDY
CHEERS AND BEERS
Whitbread, the leisure group behind the Beefeater and Brewers Fayre pub chains, has one female executive director and three female non-executive directors, meaning that women make up 30.7 per cent of its board.
The longest-serving female member is Wendy Becker, who is a non-executive director and a member of the company’s audit and remuneration committees. She joined in February 2008 and is a former managing director of TalkTalk.
Ms Becker believes that she brings experience of the retail sector as well as the ability to make connections for the management team. “I was on a board of a smaller company and know a lot about consumer pricing and know a lot of consumer pricing experts,” she says.
Having more than one female board member allows for different viewpoints to flourish, she says. “Diversity on the board allows for different points of views and that helps with the running of any business. We have a diversity policy as a board where we aspire to get the widest range of views possible to represent our shareholders.”
Whitbread’s female executive director is Louise Smalley, who joined the board in November 2012, in the role of group human resources director. One of her roles is to oversee the diversity strategy in the company. “We’ve consistently focused on our main board composition to ensure that we have had the appropriate breath of skills, experience and diversity to be truly effective,” she says.
Whitbread encourages female talent by ensuring board members are available to coach and mentor women. The company also sponsors and mentors talented women among its senior leaders and middle management, she adds. “We don’t set targets for women managers and leaders, but we’re particularly focused on making a significant impact at the points in our organisation where gender balance changes. At these points, we’re reviewing our working norms, evaluating processes and flexible working arrangements,” says Ms Smalley.
