Board Diversity Without Quotas: An International Perspective
As the European Union considers introducing compulsory gender quotas on boards, IIC Partners Chief Marketing & Communications Officer Polly Stewart talks to three global experts on c-level diversity and whether it is achievable without quotas.
Janice Reals Ellig is co-CEO of IIC Partners' member firm Chadick Ellig, based in New York City. The ongoing track record is that 50% of Chadick Ellig's executive level appointments are diversity hires, that is women and minorities.
"I don't believe there should be quotas. Companies can do this without quotas but in the USA we are only at 16.1% female representation of the Fortune 500 and we are increasing at less than 1% a year. At this rate it will take 60 years to reach parity – so obviously women on boards is not happening," says Janice.
"Promoting board diversity is not simply the right thing to do, it is a ‘strategic business imperative.’ To ignore 50% of the population is foolish. Women are a company’s shareholders, buyers of their products and of services, their employees and live in the communities in which they operate. Return on Diversity (ROD) is as important as Return on Equity (ROE).
"There have been many studies by McKinsey & Company, Catalyst [a US research organisation], Deloitte and other firms which have shown there is a gender dividend when firm's embrace diversity at the board level. Three is the magic number for women on a board; three women and the rest of the board starts listening and diversity resonates.
"The more women in the boardroom and in the c-suite, the higher the performance numbers of a company. In fact, a Catalyst study found that boards with more women have ‘on average’ a 53% higher ROE. Do better companies have more women or do companies with more women perform better? – whether it is causation or correlation doesn’t really matter. The fact is a better bottom line results with more women in the boardroom and c-suite."
Janice says executive search firms can do a better job of educating boards on that performance differential.
"The key is to help them recognize that the boardroom does not reflect their customer, community, shareholder or employee base. Boards need to ask themselves, 'Are we diverse enough?' In gender, race, age, and different backgrounds?"
Janice says in the USA boards may not be facing the threat of quotas just yet, but more and more pressure will be coming from "the big sticks - institutional investors".
In early February, as Facebook announced its intention to hold an initial public offering, the Director of Corporate Governance at CalSTRS, Anne Sheehan, wrote a letter to Facebook Chairman and Chief Executive Officer Mark Zuckerberg. CalSTRs is the second largest public pension fund in the USA with assets of $US150 billion.
The public letter stated: "We are disappointed that the Facebook board will not have any women members. This is particularly glaring in view of the fact that Facebook is going public at a time when there is clear evidence that companies with diverse boards perform far better than the companies with more homogeneous boards. We also note that Facebook COO, Sheryl Sandberg has been very supportive of increasing the diversity on corporate boards, particularly gender diversity and in the senior management of corporations."
U.S. media have reported that Facebook is yet to respond to the letter.
Janice says her route is more of a carrot approach.
"I think it is important to celebrate F1000 companies that have at least 20% women in the board room as a way of getting others to follow their lead. Every two years the Women's Forum of New York will honor those companies in the tri-state area [New York, New Jersey and Connecticut] at the New York Stock Exchange. These are companies like Avon, Estee Lauder, the New York Times Co., and Macy's which have levels of 40% of women on their boards, to those with 30% like Alcoa, Pepsi, to those at the threshold with 20% like Pfizer and Campbell’s Soup.
"But 20% is still not enough. The Women's Forum is also encouraging CEOs to sponsor - not mentor - but sponsor women in their companies. We, the Women’s Forum of New York, are developing a global database of these women and they will be very attractive to a board because the CEO is putting his/her name on the line and saying 'this woman is board-ready'. The database is available free of charge to search firms and board nominating committees who want to find board-ready women who have that CEO endorsement. We are showing the pipeline is there and increasing the pool.
"The call to action is the 2022 challenge. If we in the U.S. do not get to parity in 10 years' time, then shame on us. Then I think the U.S. will seriously have to consider following our partners across the pond in Europe."
The situation in China could not be more different from the US, according to an international commercial survey commissioned by the Chinese government and conducted in early March 2012 by Grant Thornton.
The survey found that China leads the world when it comes to women in executive roles. In China, 45% of Chief Operating Officer positions are held by women, compared to 12% for the rest of the world; 41% of senior HR executives in China are women, compared to 21% for the rest of the world. They survey also found that the Philippines and Thailand come in joint second with 39% of senior positions held by women.
"Gender balance and diversity is not brand new and as you can see from the percentages the APAC region has sensed the trend and led the trend globally, says Rosa Zhang, HR Strategic Business Partner for Asia-Pacific, Middle East and Africa at NCR Corporation.
"China has advocated equality between men and women for around 60 years. Women here have gotten good educations and good job opportunities, just as men have, which has led to more women in senior corporate positions in companies or running their own companies, compared to the rest of the world.
"However, from the percentages as you can see, there are still areas for improvement in China. In Asian culture and customs, the same as other parts of the world, women have been staying at home to be mothers and housewives. In the majority of people's hearts, when compared to men, a woman's role in society is still primarily as a mother and a housewife.
"Because of this way of thinking, women have gotten much less than men in the general sense of education and work opportunities, thus making the women's talent pool much smaller than men's, which has impacted on the number of senior women professionals in the market.
"Diversity is a long term objective. Changing people's mindsets is key, some statutory requirement would also help to drive the change.
"Internally, HR functions can legislate for quotas of senior female executives within business operations. Programs like a flexible working policy would also help as women need it to balance their time in both home and office so that they could look after their family. HR can also develop plans to help foster development among women with high potential and get them into roles where they can best use their expertise.
"NCR is a multinational IT company and our headquarters are in the USA, so we have been impacted by global trends and local statutory requirements in our different markets. We have policies to avoid gender discrimination and we meet gender mix requirements from different countries. We have a program designed to help female employees change their mindsets and be more confident and strong in their business skills.
"Women do have higher expectations for their career compared to 10 years' ago, for example, 75% of female professionals in China have desires to become senior executives. The biggest obstacles are people's mindsets, cultures and customs, which have always impacted on women's professional career growth from the very beginning and subsequently impacted the female talent pool for senior positions. And women can be just as limiting to other women as men - and even self-limiting. That is a global issue."
Clare Spottiswoode CBE is one of the UK's most prolific and successful female board directors. She currently sits on seven boards and in total has held 28 executive and non-executive directorships - in addition to sitting on a number of government committees. She has been the chairperson of several boards including UK FTSE 30 Tullow Oil plc and US firm Energy Solutions. She was Gas Regulator, a member of the post crash Vickers' Independent Commission on Banking (ECB) and sits on the board of G4S, the world's largest private security organization by revenue.
Can the boards of the UK's top companies embrace diversity without quotas?
"I get no sense whatsoever that they will ever worry about this unless they are forced to," says Clare, adding that she believes executive headhunters need to take more responsibility for assisting boards to become more diverse.
"They create specifications that look like what men look like and that is because there are so few executive women. They just look for the old guard instead of a bright spark who comes from a different background. They look for what is normal as opposed to what is a bit special," says Clare.
"It's understandable why. Many diversity candidates have non-traditional experience that is untested and headhunters don't like to take risks on behalf of their clients. But I haven't seen evidence that the headhunting community is proactively approaching diversity with the right methodology.
"I want women to get on boards because they deserve to be there. But how do we find them? I have sat on boards where we have looked quite hard. Women are not getting on to candidate lists naturally. And of course, diversity is not just about women, and diversity can be different for different companies."
Clare was appointed to her first directorship after she responded to an ad in the UK's Sunday Times and interestingly, she did not fit the original specification for the role.
"I rang up a headhunter and gave my background. I said, 'If you're looking for a about-to-be-retired senior industrialist I am not it." But I did have a whole series of skills they wanted, still I was quite a risk.
"I don't feel and I never have that I need to compromise by towing the line. If it's the right thing to do, I will do it and I do think women tend to be like this. Men are more concerned about being seen to do the right thing.
"Now the key issue I look at before I join a board is do I think bad news will be brought to a board in an open way? It's about integrity, I want to know, to be sure, that when bad news comes along the board will do the right thing. And this comes from the top.
"The character of the CEO of is very important. I sat on one board in Norway [Norway introduced statutory quotas for 40% of women on boards of publicly listed companies in 2004] where the CEO/Chairman who had founded the company never allowed discussions and it was never going to change. I don't think there was much respect for the women on that board who were appointed because they were young and pretty."
Clare says the UK's Financial Reporting Council (FRC), which acts as the regulator and sets standards of corporate governance for the audit, accounting and actuarial professions, is looking a adding a 'comply or explain' to its corporate governance code.
"This would be very powerful. Companies governed by the FRC would have to adopt a diversity policy, explain what it is or explain why they haven't got one."