Getting women on board(s)

Thursday 11th February 2010
The Boardroom.jpg

In an era where women in the developed world are regularly told they can do anything, why are women so deeply underrepresented in corporate management?

A recent New York Times article highlighted the issue, reviewing the number of women on company boards across the developed world. It found the following:

• In the top 300 companies in the EU in 2009, only 9.7 percent of the board members (directors) were women

• In the US, 15 percent of board members of the Fortune 500 companies were women

• In China and India women in the top companies hold a mere 5 percent of board seats

• In Japan, women in the top companies make up a tiny 1.4% of board membership

In Australia and the Pacific, the statistics are no different - 8.6% of private sector company directors in New Zealand are women. Similarly, females make up only 8.3% of board members in Australia’s 200 ASX (stock exchange) companies – and the figure is decreasing.

In August 2009, the Corporations and Markets Advisory Committee, (CMAC, which advises the Federal Australian Government on corporate law issues) recommended that the ASX Council implement guidelines to get more females onto company boards.

Women as board members

But doing so is a difficult business. Traditional gender employment issues such as maternity leave, child care and the ability for women to return to work, as well as sexual discrimination and harassment in the work place are each too broad an issue for the scope of this article.

So leaving those significant issues aside, a report by the Australian CMAC found that a key factor behind the lack of women on company boards was that directors are selected from a “relatively limited pool” and are often “drawn from the ranks of other boards and senior corporate executives”.

In effect, appointments to company boards is a cycle geared towards the promotion of men.

But other than the worthy pursuit of gender equality, why should women feature more on company boards?

A recent study by the London Business School found that teams with a balance of men and women were more likely to experiment with ideas, share knowledge, reach goals, and be all-round better innovators.

Having women on boards attracts female investors and more female employees. And given that women drive most purchasing decisions in households across the western world, having more women provides a better understanding of a company's market (provided that’s the market)

But the bottom line is, having women on boards can make a company more profitable too.

In 2007, a New York study found that of the Fortune 500, for those in the top 25% of female board representation, return on invested capital was 66% higher, return on equity was 53% higher, and return on sales was 42% higher than those in the bottom quartile.

All aboard

In Germany, where women make up a measly 2.5% of board members in the 200 biggest companies, the German Institute for Economic Research pointed to legislation as being the key factor in attracting women to board membership.

It cited Norway as an example, which passed a pioneering law in 2003, requiring that at least 40 percent of all company board members must be women.

Before Norway’s law, only 7% of publicly listed Norwegian companies’ board members were female. But the plan worked and in 2009, Norway had the highest proportion of women on corporate boards in the world – with an average of 44.2%. Similar laws have been passed in Spain in 2007, and in the Netherlands.

Such ‘affirmative action’ laws for women can’t be written off as a lefty feminist trend either. Last year, French President Nicolas Sarkozy’s centre right party UMP proposed legislation that would require all companies listed on the Paris stock exchange to ensure 50% of their board members were female by 2015.

The downside of this type of legislation is that the women appointed to Norway’s boards have less business experience than the men who previously held those roles. That of course, has some effect on short term business profitability.

The question is whether that short term loss is outweighed by the long term benefits of equal representation.

While legislation like Norway’s is in no way a complete answer to gender inequality, legislating for greater female representation is a positive step on the path to more female friendly employment policies, and to business and social progression.

By Natalya King

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