Posted February 24, 2011
By Henrietta Holsman Fore, Susan Schiffer Stautberg and Alison Winter
Good governance of any organization must always start at the top, and that responsibility and opportunity lies with the board of directors. But a board of directors is only as effective as the individuals around the boardroom table, how they operate as a team and the corporate culture they create.
A key aspect of a healthy corporate culture is diversity of thought, skills and experience. The corporate boardroom is the latest stage for this controversial issue. Worldwide representation of women on boards still remains incredibly low, and this number has not moved much in the past decade.
Diversity is not the same as the old Affirmative Action, which was undertaken from a position of weakness in an attempt to persuade power brokers to do the “right” thing. As corporations face increased global competition from everywhere for everything from everyone, they must build growth and drive strategy. This creates the need for experts with diverse skills sets, such as manufacturing in China and India, supply chain and logistics, global branding, strategic talent and others.
Numerous studies show that increasing gender equality enhances productivity and economic growth. Boards need to avoid “group think”–non-consideration of alternative ideas and a desire for unanimity at the expense of quality decisions. The best ideas flourish in a diverse environment, and companies benefit from accessing female talent.
And while one or two women can make a difference, three can make proportionally more of a change. As a participant in one study commented, “One woman is the invisibility phase; two women is the conspiracy phase; three women is mainstream.”
What holds back the increase in women corporate directors is not the lack of world-class women leaders but awareness about them. Mentoring helps, but advocacy and networking are best–potential directors need to grow visibility and credibility.
Several European governments–notably, France, Norway and Spain–passed legislation, and several others, such as Belgium and the U.K., are considering legislation to promote gender diversity. The threat of legislative quotas was the catalyst for change in France. Maurice Levy, chief executive of the advertising giant Publicis, has women in seven of the 15 seats on his corporate board–because they were the best people for the job.
Even so, Levy has said that were it not for the threat of legislation in France, the industry association he chairs would not have recently adopted a commitment to a minimum number of women board members. Other French CEOs also feel the pressure. Overall the percentage of female non-executive directors in France has jumped to 16%, from 12% last year.
The truth is, when you look at the cold, hard facts, quotas should not be necessary. Indeed, study after study shows that having more women in the boardroom improves corporate financial performance. Companies with more women on boards far outperform those companies with fewer women directors: by 66% return on invested capital of companies, 53% return on equity, and 42% return on sales between 2001 and 2004, according to Catalyst.
Similar results came out of a McKinsey study covering the period from 2005 to 2007. Studies also suggest women have less tolerance for ethical lapses and are more likely to perceive specific business practices as unethical. Shouldn’t every company with fewer than 30% of women on boards reconsider their mandate on performance?
Change in the U.S. is more likely to result from less punitive measures, such as increased disclosure on the criteria, including diversity, that governance and nominating committees use to select new directors. It is hoped that this increased focus will lead to a greater consideration of women and minority candidates.
As we learned from Norway and France, quotas can be effective; to really work, they should be accompanied by preparatory measures, smart guidelines and implementation plans, along with databases of qualified women and corporate governance training for women.
The U.S. business community members shun the use of quotas to promote diversity, according to a survey by Heidrick & Struggles, WomenCorporateDirectors and Dr. Boris Groysberg of the Harvard Business School. These findings show that only 25% of women and 1% of men supported diversity quotas in the U.S., even though women make up just 15.2% of directors at the largest companies. The majority of women themselves aren’t willing to legislate change. This is one of the many findings the survey of nearly 400 male and female board directors reveals.
Clearly, legislation–even the threat of it–works. But women in the U.S. and around the world want to be judged and placed on boards based on their own merit and accomplishments, not because a company must be forced by law to do it. The fiduciary responsibility of a corporate board can most easily be met when the best people are chosen to serve.
Board diversity is a business imperative–it is multigenerational, multinational, multicultural and multiregional. Placing women and minorities on boards is a win-win for the boards of directors, the companies they serve and ultimately the shareholders. In short, it’s good governance and good business.
Henrietta Holsman Fore, Susan Schiffer Stautberg and Alison Winter are global co-chairs of WomenCorporateDirectors, the only global membership organization and community of women corporate directors, with more than 800 members who serve on more than 1,000 boards in 27 global chapters. Holsman Fore was the administrator of USAID from 2007 to 2009, and is a director ofTheravance ( THRX – news – people ). Schiffer Stautberg is the president of PartnerCom, which creates and manages advisory boards for corporations internationally. Winter was the founding president and CEO of Personal Financial Services-Northeast of Northern Trust ( NTRS – news – people ), and is a director of Nordstrom ( JWN – news – people ).
Posted on http://www.forbes.com