Gender Diversity in the US Boardroom
Female representation on U.S. corporate boards has not changed significantly over the last 10 years. Women make up just 12.7% of directorships in the S&P 1500 (based on board composition as of the 2010 annual meeting). The statistic is marginally better for the S&P 500 (15.7%), but in both cases, the representation reflects only a three percentage point rise over the last decade.
Female representation is even less for companies beyond the major indices; for ProxyGovernance Inc’s domestic coverage universe of approximately 3,500 companies, women hold just 9.4% of the directorships – about the same number of seats held by individuals named either John or Robert. Even advocates of board room equality who typically point to longer-run shifts, concede that momentum has softened over the last few years. One indicator of this: the proportion of new directors that are women hovers around current representation levels. For instance, so far in 2010, 14.4% of new directors at S&P 500 companies were women, 15.3% at S&P 1500 companies and just 10.5% for PGI’s coverage universe.
The incremental change over the last decade is mirrored at the issuer-level, with the proportion of boards including at least one female director inching up from around 85% in 2001 to approximately 90% in 2010 for S&P 500 companies and from 64% to 71% for companies in the S&P 1500 index.
The situation is similar in Europe, where there have been calls for quotas or other legislative initiatives to improve the gender balance. Earlier this month, for instance, The Financial Times reported that Vivane Reding, vice-president of the European Commission is considering the possibility of a pan-European quota, following the example of Norway, which implemented a 40% quota rule effective in 2008. Meanwhile, in the United Kingdom, acting on an election pledge to require long-list director slates to include 50% female candidates, the Conservative-led coalition government has launched an independent commission to look into why so few women serve on corporate boards. The inquiry, led by former Standard Chartered Bank Chairman Lord Mervyn Davies, is expected to report back in early 2011. So far, similar calls have not been echoed as loudly in the U.S. equity markets.
Does Gender Diversity Reward?
Normative questions of equality aside, why should board diversity matter to shareholders? This question has motivated numerous and often contradicting analyses of the relationship between financial performance and board composition. A recent paper by the Rock Center for Corporate Governance at Stanford University wades through the empirical literature and concludes that the relationship between diversity and performance has yet to be convincingly established. However, they do find some theoretical and empirical basis that well-managed diversity (meaning beyond tokenism) can improve decision making and enhance corporate reputation.
Meanwhile, a new survey of director attitudes by the advisory firm Heidrick & Struggles, the organization WomenCorporateDirectors and Harvard University Professor Boris Groysberg, found that in a study of nearly 400 male and female U.S. corporate directors, there were striking differences in how men and women think about some of the key corporate governance challenges sparked by the financial crisis. Among other things, the study found that female directors are more open to increased oversight, including enhanced risk management (40% vs. 1% of male respondents), more regulation regarding executive compensation (45% vs. 22%), and proxy access (38% vs. 17%).
Industry Representation
Tremendous discrepancies in the recruitment of female directors exist across industries. Using the 10 broad economic sectors of the Global Industry Classification Standard (GICS), boards in the Energy sector have the lowest proportion of women; female directors hold just 7.2% of directorships. Representation is also below average in information technology and industrial sectors. Female representation is comparatively high in consumer-facing industries, including the consumer staples (17.8%) and consumer discretionary (15.1%) sectors, and also, somewhat more surprisingly, the telecommunications (16.1%) and utility sectors (17.5%).
Board and Committee Appointments
Once appointed to a board, a female director is only slightly more likely to serve on a key committee than her male counterpart – despite being more likely to qualify as an independent director (93.7% of female directors, as opposed to 79.2% of their male counterparts, are independent) – and is generally less likely to serve chair of a key committee. For the S&P 1500, where women make up 12.7% of all directorships, women hold 13.7% of the audit and compensation committee positions and 14.7% of the nominating committee seats, but occupy just 10.4%, 10.7% and 13.5% of the respective chair positions.
Women CEOs are uncommon: for the S&P 1500, women occupy just 3.7% of corner office suites. The female independent chairperson is rarer still; there are only 12 female independent chairs in the S&P 1500. While 26.0% of these companies have an independent board chair, only 0.8% appointed a woman to this position.
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What is surprising is that these numbers have been so static, while the percentage of women moving into middle-manager positions has risen dramatically, and at the other extreme, the number of female CEOs, while still tiny, has risen exponentially. Actually, given the very high percentage of CEOs and ex-CEOs on boards, this last element may explain a lot: there aren’t yet significant numbers of women in the CEO pool from which the handful of board recruitment firms find most of their candidates.
This isn’t to apologize for the recruiters or their clients, the nomination committees. Both these groups have displayed a stunning lack of imagination in reaching out to find candidates from groups historically under-represented on boards. The obsession with collegiality may be part of it: one way to try to ensure collegiality is to try to recruit people who all think alike because they are out of the same mold. (Of course, this is particularly harmful from a governance point of view, but governance is only about public relations, right?) Another factor may be that CEOs, who have lost some of their grip on their boards over the past fifteen years, may be trying harder than ever to anticipate how the board will react to their proposals by insisting that director candidates be individuals whom they find intellectually predictable.
But I think the simplest explanation is that recruitment firms can afford to be lazy and only look at the pool of candidates whom they already know. They get paid—well—anyway. Unless they are specifically told, “Find us a woman,” or “Find an ethnic minority candidate,” such people will be grossly underrepresented in the pool of candidates, and thus their chances of being selected are disproportionately smaller. Given the way younger males are screwing up in school relative to the female population, the solution to this problem may be closer than we think, but in the interim, the only way it will shift more rapidly is if shareholders demand it. Since the majority of senior institutional shareholders are still themselves male, and since calls for “diversity” in their minds may still be equated with social causes, rather than with the economic side of governance, this is still a difficult sell.