By: Donna EvansIssue: Transformation Section: Community How does a company or nonprofit organization maintain an edge to perform at its peak in this economy? Can the lessons learned today provide new best practices to emulate in the future? Is diversity in the boardroom a factor in improved performance?
At a time when organizational performance is highly scrutinized due to economic cycles and globalization, the presence of more women in the boardroom could have a significant, positive impact on both corporations and nonprofits. According to the National Association of Corporate Directors, companies having women on their boards bring increased value to their corporations by broadening market vision, enhancing board dynamics, inspiring female stockholders and improving corporate reputation.
The Economic Impact of Women
Economically, in the United States of America, women now control more than 80 percent of all household purchases, according to the February 2010 article by Joanne Cleaver titled “What Women Want.” Data also show that as of 2010, women controlled 27 percent of the world’s wealth—or about $20.2 trillion—growing an astounding 16 percent since 2009. And, women in the United States now control 60 percent of the spending and investments worldwide, making them the largest economic force in the world, according to the Federal Reserve Board. According to the Center for Women’s Business Research, women own 10 million businesses in the United States and employ 27 million people—more than the Fortune 500—and those numbers grow every year. Further, the Economic Journal reports that women donate twice as much to charity as men, and increasingly are the target of philanthropic organizations.
Women Board Members Impact Organizations
With the growing economic impact of women comes more attention to the positive results they generate for corporations and nonprofit organizations. Gender Imbalance in the Boardroom: Opportunities to Change Course, published by the InterOrganizationNetwork, cites several positive results achieved for organizations when female directors serve, including:
• Improved financial performance • Improved governance • Higher level of board independence from management • Stronger commitment to social responsibility • Increased number of women role models in society
And, experts consistently cite research that demonstrates corporate and nonprofit organizations experience these benefits when three or more women serve on the board.
Diversity in the boardroom is not an egalitarian issue; it is a performance issue for all corporations and nonprofit organizations.
Who Are the Women?
Unfortunately, women’s economic impact is not well recognized in leadership roles, particularly in the boardrooms of major organizations in the United States. Catalyst, a research organization that focuses on women’s roles in business, reports that in 2011 women held an average of 16 percent of directorship positions in the Fortune 500 companies, with a breakdown showing the following across different board positions.
In addition, in the 2011 Report of Women on Fortune 500 Boards, published by Catalyst, it shows that women comprised at least 25 percent of the directorships in 16.3 percent of the Fortune 500 and that 11.3 percent of Fortune 500 companies included no women on their boards.
While performance of the Fortune 500 provides an important benchmark, the statistics are not as good for the pool of potential corporate directorships in all publicly traded and closely held companies. The InterOrganizational Network (ION), which advocates for the advancement of women on boards and in executive roles, says, “Although the Fortune 500 companies in some regions exceed the national benchmark in terms of their percentage of women directors, the comparable percentages on the boards of small companies in most regions drag down the overall performance.”
Norway, Sweden and Finland all boast percentages at 25 or higher for female representation in the boardroom. By comparison, the United States lags most European countries, with African and Asian countries quickly picking up the pace. The Catalyst study Increasing Gender Diversity on Boards: Current Index of Formal Approaches, 2010, shows that legislation and regulation providing for minimum standards for directorships held by women in publicly traded companies has been instituted in 28 countries.
Women on Boards = Improved Financial Performance
Peak financial performance for organizations is significantly impacted by women. In a speech by SEC Commissioner Luis A. Aguilar to the SAIS Center for Transatlantic Relations, he reports that “there appears to be a meaningful relationship between diverse boards and improved financial performance.” Catalyst research reports that companies with more female directors outperform those with the least women by 53 percent. Their research documents interesting return on equity, sales and investment figures.
A Pepperdine University Corporate Board Investor Survey of corporate investors says that 51 percent of investors consider female board composition when picking stocks for investments. Board Diversification Strategy: Realizing Competitive Advantage and Shareowner Value, published by CALPERS, shows that “companies without ethnic minorities and women on their boards eventually may be at a competitive disadvantage and have an underperforming share value.”
Women on Boards = Improved Governance
Peak governance performance is significantly impacted by women. The presence of female directors, especially when three or more women serve on the same board, provides positive governance benefits to a company. In fact, the Conference Board of Canada found that boards with more women surpassed all-male boards in their attention to audit and risk oversight and control, as well as identified two significant factors for improved governance, as shown on the next page.
Women on Boards = Increased Independence
Peak performance requires board independence and female directors significantly impact the level of independence exhibited by a board. Directors guide three functions for organizations—strategy, risk management and performance of the chief executive officer. Research shows that women directors naturally demonstrate skill in acting independently and influencing other directors to do the same. A Wellesley report notes that “increasing the number of women to three or more enhances the likelihood that women’s voices and ideas are heard and that boardroom dynamics change substantially.”
Women on Boards = Greater Social Responsibility
Peak performance incorporates social responsibility as part of the daily fiber of an organization. Organizations with more women on their boards are credited with raising awareness and activity for social responsibility. Catalyst found that companies with female directors and executives contributed more philanthropically and environmentally. They tracked companies from 1997-2007 and found that each woman added to a board represented a $2.3 million increase in contributions, and each woman added to the executive team represented $5.7 million more in contributions.
Women on Boards = More Role Models
Peak performance includes the development of role models within the organizations and for society. When women serve on boards of directors, their impact as role models pervades all levels of business and society. The Conference Board of Canada reports that as more women are selected to boards, more women are appointed to senior management. Increasing the number of women in board and executive roles, therefore, increases the number of role models for women and girls, and encourages all organizations to emulate them. Two factors impact the growth of women in leadership, according to the Conference Board: 1) the openness and commitment of the CEO, and 2) the commitment of board nominating committees to develop proactive programs to recruit women.
How Does Colorado Stack Up?
The Women’s Leadership Foundation, Inc., a division of the Colorado Women’s Chamber of Commerce, is committed to increasing the success of Colorado organizations by providing a pipeline of women available to serve on their boards. The number of women on boards in Colorado private companies is currently less than half the national average, and the total number of boards having any woman members at all is only 44 percent, most of these having only one woman member. According to Women on Boards: Not Just the Right Thing ... But the ‘Bright’ Thing, published by The Conference Board of Canada, there is only one publicly traded board in Colorado having more than three women members.
The Women’s Leadership Foundation’s program Board Bound™ provides mentoring, networking and training to better position more women to serve on boards in the best interest of their organizations and the community. The foundation’s vision is for every Colorado board to include at least three women directors and for each woman to be subsequently replaced with another woman in her board role in the future.
Peak performance in organizations is significantly impacted by the presence of female directors. The supporting research is overwhelmingly positive and consistent with other research about women in leadership, demonstrating women’s unique personalities reflect successfully in any organization. Women in the boardroom provide a performance opportunity, not an egalitarian issue, for both corporations and nonprofit organizations that aim to solidify their competitive advantage and future. Women significantly impact an organization’s performance, particularly when three or more women serve on the same board. Organizations benefit from women serving in the boardroom, including through improved financial performance, improved governance, a higher level of board independence from management; a stronger commitment to social responsibility; and an increased number of women role models in society.
For more information about the Women’s Leadership Foundation and the Board Bound™ program, visit www.womensleadershipfoundation.org.