Would a company like to have a 53 percent higher return on equity than its competitors? Or would it prefer a 42 percent advantage in return on sales? Or even outperforming its competitors by 66 percent on its return on invested capital?
In a well-cited study in 2007 by Catalyst, Fortune 500 companies in the top quartile of women representation on their boards showed precisely those performances relative to those in the bottom quartile. The results are even more striking for companies with three or more female board directors, as reported in another Catalyststudy, The Bottom Line: Corporate Performance and Women’s Representation on Boards, with 46 percent higher return on equity, 60 percent return on invested capital, and 84 percent return on sales, in comparison to companies with zero women board directors.
Moreover, a recent study by Credit Suisse of 2,400 companies globally found companies with at least one female on the board outperforming stocks for similarly capitalized companies with all-male boards by 26 percent over the past six years.
Despite these performance differences, the 2011 Catalyst Census of Fortune 500 companies showed only 16.1 percent of board seats held by women directors.
The Case for Women on Boards
In selecting new directors, companies should have a goal of creating a boardroom capable of responding to rapidly changing market conditions, providing insights about global markets, and optimizing operations and supply and value chain dimensions. In considering the diversity of the boardroom with respect to women and minority membership, the composition of the board should be sensitive to the demographic diversity of its customer base. In that case, one might expect more gender diversity for companies in the consumer goods, health care and financial industries, than in industries such as energy and utilities, and that is, in fact, the case.
However, there is interesting research which suggests that women excel in “right-brain thinking” that is critical to responding to dynamic market conditions. For instance, in A Whole New Mind, Daniel Pink cites evidence that women have a greater capacity for empathy, with the ability to appreciate “inexactness,” “the larger picture,” and “context.”
Without the benefit of following Danica Patrick, Henry Ford has been quoted as saying, “Women do not win Formula One races, because they simply are not strong enough to resist the G-forces. In the boardroom, it is different. I believe women are better able to marshal their thoughts than men because they are less egotistical and they make fewer assumptions.” In the earlier cited Catalyst study, male CEOs and directors noted that having women in the boardroom led to better discussions and more effective decision making. In a 2012 Conference Board report, Women on Boards, CEOs interviewed recognized the “need to do things differently” and that adding “unconventional directors – leaders in their 40s, experts in digital marketing or possessors of strong international experience, and/or women or minorities” made for more productive meetings.
Is Texas Ahead or Behind in Gender Diversity on Boards?
There is no question that the gender diversity of boards for boards in Texas reflects the same challenges true for board composition nationally, and is exacerbated in many industries. The Conference Board found as recently as October 2011, 13.9 percent of Fortune 1000 companies had no female board directors. Similarly, the 2020 Gender Diversity Index based on research by 2020 Women on Boards showed 19 percent of Fortune 1000 and ten percent of Fortune 500 companies with zero female board members in 2010. Using this same database, there were 26.9 percent of Texas Fortune 500 companies with no female board directors.
The limited gender diversity of Texas Fortune 500 company boards is especially notable for the energy and utilities industries where 32.1 percent of the boards have zero or less than ten percent female board membership, as compared to national boards at 18 percent. On the other hand, 100 percent of Texas Fortune 500 companies in the technology, consumer, financial and health care industries have female board membership exceeding ten percent, and those in the consumer, financial and health care industries have greater than twenty per cent female board membership. Gender diversity for companies in these industries clearly model best practice for change in board governance.
Pipeline for the Future
Increasing the gender diversity of boards is clearly of interest to many shareholders, who have at times been aggressive with shareholder proposals or other campaigns to call for increased gender diversity. And with significant numbers of current board members over the age of 70, there will be emerging vacancies on company boards.
Preparing women to fill these vacancies requires commitment from many different stakeholders. Colleges and universities provide training for executive women in degree programs such as the Executive MBA and through executive education programs. Companies must support leadership development programs for women and assure that women are increasingly in key executive positions. And, of course, women must aggressively pursue these opportunities.
Nominating committees and search firms must commit to developing deep and diverse pools of candidates that would emerge from the efforts identified above. Indeed developing a pipeline of future women executives is not enough. Evidence is clear that companies in Texas could benefit from having significantly greater gender diversity on their boards to take advantage of the creativity women would bring to such roles and to provide for a more dynamic and collaborative board environment.
O. Homer Erekson is the John V. Roach Dean at the Neeley School of Business at TCU, and Professor of Managerial Economics and Strategy, and 1st Vice Chair of the Alliance for Higher Education/North Texas Regional Center for Innovation and Commercialization.
Jun 11, 2016 Comments Off on Who Runs the Corporate World?
Episode 3 of our podcast, #AskaCEO, is out now! What, exactly, is leadership? And how do you master it? @TheAmericanCEO has three factors for getting there. podcasts.apple.com/us/podcast… pic.twitter.com/gNbN0UD6gi
San Antonio #CEOs and leaders: Join us tomorrow at @Geekdom for lunch with 4 local civic- and safety-minded entrepreneurs! (feat. CEO/founders of @cityflag_, @RubrixAID, @Mach1Services & RMS Innovations) Start time: 11am eventbrite.com/e/the-frontlin…