Does it really matter who’s on the board of a company?
Is that the right place to start when it comes to solving for gender and pay imbalance in the workforce? The short answer: Yes.
Board representation is so important. They make decisions that directly impact what we buy, what’s in our fridge, the types of cars that are in our garages, they influence the strategic directions that a company is going to go in. If you want an indicator of what a company’s culture is about, you need to look at how many women do they have on their board.
In most of our nation’s largest and influential companies, women remain severely outnumbered when it comes to board representation, including major tech companies such as Facebook, Yep, Intel, Apple, Tesla, and Snap. California recently passed a law that is encroaching on this gender gap.
Having an effective board of directors is crucial to an organization. Even if the average person might not be able to name an organization’s board members, they have a strong impact on how an organization runs, makes decisions, and ultimately, on its success. This is particularly true in healthcare, biotech, and pharmaceutical spaces, which are growing more complex almost by the day as regulations change.
Therefore, bringing in a variety of perspectives, backgrounds, and experiences can be key to an organization’s success. One way to bring in these diverse perspectives is through gender diversity on a board, and yet women only make up a small percentage of boards of directors in the United States.
The percentage of women on boards overall in the United States is between 11 and 12 percent and has barely increased in the last decade. For health-related companies, the numbers of women on boards vary greatly, from 9.7 for biotech companies with under 1,000 employees to 27 percent on hospital boards. Generally, at Fortune 500 healthcare companies, 21 percent of board members are women, despite the fact that women make up half the workforce of these companies.
While many companies claim the priority of appointing the best person regardless of gender, these numbers illustrate that this is not necessarily happening when it comes to actual board recruitment processes. And yet, there are many reasons that hiring a diverse board is good for your company, from having a positive impact on financials to increasing your potential talent pool.
Having women on your board is good for your bottom line.
Many studies have shown that having a more diverse board is good for business. For example, of the 842 active companies on the Fortune 1000, women hold 18.8 percent of board seats – an increase from 17.7 percent in 2014 and 14.6 percent in 2011 – and 45 percent of all companies on the Fortune 1000 have 20 percent or greater women on their board. In addition, over 55 percent of the companies that became inactive on the index had one or zero women on their boards.
Companies with women directors on their board also perform better than those without women by specific metrics. For example, when Fortune-500 companies were ranked by the number of women directors on their boards, those in the highest quartile in 2009 reported a 42 percent greater return on sales and a 53 percent higher return on equity than the rest.
There are several reasons that companies with more diverse boards perform better. One is that diverse board’s often better mirror customer and client bases. This is particularly true in health care, which is a complex space with a very diverse customer base. Having a diverse board can help you better understand purchasing and usage decisions, particularly as studies have found that women drive 70-80 percent of purchasing in the United States. Even for B2B businesses, having a diverse board can help you better understand your customers. In hospitals, for example, women make up 83 percent of the general workforce, 65 percent of directors, and 43 percent of executives. Without women on your board, you are missing a valuable opportunity to bring in voices that represent this broad swath of potential and actual customers and clients. As the Committee for Economic Development, a Washington DC nonprofit policy organization, said in their report “Fulfilling the Promise: How More Women on Corporate Boards Would Make America and American Companies More Competitive,” “no company will remain competitive for long if it ignores half of its available labor pool.”
Having women on your board helps you develop a broad talent pool at all levels.
By diversifying your board, you increase the number of potential board members and thus increase the chances that you will end up with a board member who has the necessary skills, experience, and intelligence to make good decisions for your organization. In addition, you do more than widen the talent pool at the top of the company — you send a signal that developing women and minorities as leaders are generally important to you.
This can help lead to employee diversity, which in turn can help you in several ways. Women earn 57 percent of bachelor’s degrees, over 62 percent of master’s degrees, and 53 percent of degrees such as PhDs, medical degrees, and law degrees in the United States. This means that there is a large talent pool of women who can greatly add to your workforce, not just in terms of their gender, but in the range of experiences and competencies that they can bring to your organization.
The proactive hiring of women is important at all levels, but putting women on your board can set the tone for the rest of your hiring. For example, there is strong evidence of a “leaky” pipeline in scientific fields, including biotech and the pharmaceutical industry. Women receive high numbers of scientific bachelors and master’s degrees, fewer PhDs, get even fewer postdoctoral positions, and so on. One of the reasons for this pipeline is that women feel there is a gender bias in these fields, whether conscious or unconscious. Women often feel isolated, with a lack of female role models and sponsors. While having women on your board won’t necessarily solve these problems, it can go a long way towards helping create an organizational culture that values and encourages diversity.
Diverse voices equal new ideas.
Diversity is not just about numbers. While quotas can be useful, having women or minorities on your board but ignoring their contributions and opinions doesn’t add value to your organization. It might take the effort to change people’s mindsets, but listening to and including the viewpoints of your diverse board in a real way can bring a new perspective and new ideas to help your organization succeed. While there are many ways to bring diverse perspectives to your board, hiring women and minorities, who have inherently had a different experience, is one way to do so.
There is often a tendency to choose people who “look like me” for a board, whether it is because it’s assumed that people like the others will fit in better or because it’s assumed that that’s what the talent pool looks like; a survey of over 500 hiring managers found than 74 percent of leaders reported that their most recent hire had a personality similar to their own. However, when you lack diversity on your board, you run the risk of not hearing potentially useful ideas for your organization, as well as not examining potential downsides of ideas. The Harvard Business Review, for one, cites research that shows companies with women directors deal more effectively with risk and focus more strongly on long-term priorities.
Whichever reason resonates most strongly with you, having a diverse board is good for business at all levels. By making it a priority to bring in a range of voices and encouraging women to be leaders, you can improve your organization’s performance and create a robust pipeline for future organizational leaders.
California Senate Bill 826, requires the boards of publicly-traded companies to have a minimum of one female member on the board by 2019. And there’s more good news, the law requires female representation to increase over time. By the end of July 2021, companies must have at least two female board members on boards of five and at least three females represented on boards of six or more members. What happens if a company doesn’t comply? They could be hit with heavy fines.
Ellen Pao, who advocates for diversity in Silicon Valley after famously bringing a lawsuit against her former employer for gender discrimination, said that corporate boards have the power to change hostile and exclusive cultures at tech companies, especially since they’re responsible for hiring CEOs and other executive leadership.
Think of all the scandals, product failures, harassment and discrimination we might have avoided if public company chief executives and founders had taken diversity and inclusion seriously from their early start-up days.
Women only hold 15.5 percent of board seats in California-based companies listed on the Russell 3000 index, according to a study from Annalisa Barrett at Board Governance Research. Meanwhile, in the US roughly 20 percent of directors are female. The Equilar Index estimates that it will take 40 years for corporate boards to naturally reach a gender parity. A mandate can be sort of a kick in the rear to make things happen.
Europe has been ahead of the curve in adding women to corporate boards the past several years. In 2011, France passed a law requiring boards to be made up of 40 percent women. And, in 2018, according to a recent Fortune article, the country has “leapfrogged the US” when it comes to equality on corporate boards because of the country’s ruling. Sweden, Iceland, Finland, Germany, and Norway have similar laws.
Yet requiring women’s equality on corporate boards has proven controversial. After Gov. Jerry Brown signed the bill on Sept. 30, there was an outcry about how the law was surely unconstitutional, discriminatory towards men, and would face many legal challenges. Gov. Brown said as much in a letter explaining his signature. “Nevertheless, recent events in Washington D.C.—and beyond—make it crystal clear that many are not getting the message,” he wrote. He also noted, “Given all the special privileges that corporations have enjoyed for so long, it’s high time corporate boards include the people who constitute more than half the ‘persons’ in America.”
In other words, it’s past time for women to have better access to corporate boards. But not everyone agrees with California’s new ruling.
California’s law, which was written by State Sen. Hannah Beth-Jackson, tries to make a clear business case for adding female representation to corporate boards. It cites studies by McKinsey, Credit Suisse and other financial firms that show companies with gender-diverse boards enjoying an increase in stock performance and other metrics of profitability. Yet other studies confuse the issue. One University of Michigan study from 2010 shows Norwegian companies performing worse after having to add women to their boards after a landmark 2008 quota was required by law.
Following that logic would imply that if it turns out that those groups actually reduce profits, then that would be an argument against having a diverse leadership team.
Because women make up almost half of the US workforce and are getting college and Master degrees at higher rates than men, the imbalance should sort itself out. All of the trends are moving in a direction where they’re getting more and more power and prestige,” she said, adding that a mandate could erode that progress by making women on boards serve as merely tokens, diminishing their accomplishments.
By requiring larger companies to have more than one woman on their board, it seems that California’s new law is trying to guard against this. Several organizations have published studies showing a board of directors needed at least three women to change that governing body’s decision-making for the better.
Making a board more diverse won’t magically solve the gender pay gap or sexual harassment or even result in more diversity and equality in the workforce as a whole. However, it is an encouraging step towards equality in the workforce.
I am hopeful that making boards more diverse will eventually have a trickle-down effect on other women. Although it is possible that this would happen on its own with time, it will happen faster if pushed along by other policies.
Women are taking their rightful spots in American boardrooms in Fortune 1000 companies across the country, but progress is slow. In 2015, 18% of board members in Fortune 1000 companies were women. In 2016, women held 20.2% of board positions (registration required) in Fortune 500 companies – up from 10.2 % in 1996.
This information tells us that companies across the United States are making progress addressing gender parity in the boardroom and in leadership in general, but we still have a long way to go.
In April, the founder and CEO of Salesforce, Marc Benioff, announced that the company was doing its part to change that. In an interview with CBS News, Benioff stated, “We saw in our company a lot of meetings where there were just men … I would look around the room and I’m, like, ‘This meeting is just men. Something is not right.'”
Even newer and more innovative companies are struggling to diversify. In 2012, protesters demanded that Facebook add women to its board when the company went public without any female board members. Facebook shareholder Anne Sheehan noted in a letter to CEO Mark Zuckerberg that Facebook’s action was strangely conspicuous in a time when “[there is] clear evidence that companies with diverse boards perform far better than the companies with more homogenous boards.”
Research shows this to be true: A recent analysis from 2020 Women on Boards found 55% of companies that fell off the Fortune 1000 index had one or zero women on their boards. An analysis from Harvard’s School of Public Health ranked Fortune 500 companies by a number of women directors present on their boards and found those in the highest quartile had a 42% greater return on sales.