Isn’t it ironic that boards of directors, the entities that can determine the success or failure of organizations, have typically been randomly assembled and rarely held accountable? Too many boards have been a sort of part-time gentlemen’s club for giving company affairs a quick once over and getting on to the golf course and collecting a check.
We have a rare opportunity now to make a difference. We have a rare opportunity to take advantage of the regulatory revolution and the deepening mistrust of our markets and inject integrity back into the system, to infuse governance with best practices. Most importantly, this is an opportunity for diversity.
My premise is simple: better boards equal better companies.
SSA Executive Search, our retained executive search firm, recruits and structures corporate boards. When people asked me what to read on the subject, there was no practical handbook, so I wrote The Board Book (AMACOM). The Board Institute is an outgrowth of the book to improve boards through a suite of independent, web-based assessment tools.
The market is demanding increased transparency and accountability. New compliance mandates, regulation and shareholder activism are the drivers. At the same time, boards and their constituencies are clamoring for more strategic engagement and value-add by the directors. Yet, this is in stark contrast to the drumbeat for compliance and regulation. How can boards balance the pressures from their attorneys, auditors and regulators to be risk averse (read: safe) with Wall Street calling for creativity, innovation and job creation?
Challenges and opportunities for boards have never been greater. Good governance is far more than just compliance. Good governance means good people with unwavering integrity. When building their boards, leading companies are moving from friends of friends and celebrities to board members who will meaningfully contribute to the business. The trend is to “matrix” the existing board; catalog future needs and proactively recruit the best directors to fill the gaps. Here is an opportunity for us to diversify.
Public company boards are now required to disclose director qualifications and the reasons they can contribute to the board. In addition, NYSE Euronext requires boards to disclose not only who they recruit, but how the board members were recruited. This opens the door wide for more diversity. Today only 20% of directors are independently recruited.
I would like to dispel some common myths and urge you to help bring more women on board.
What is a board? Essentially, the role of the board is to address the big issues and avoid the big mistakes – the fatal mistakes. Boards of directors are a critical success factor for all organizations, public and private, and especially smaller organizations — the very companies that are without the in-house resources of Fortune 500 companies. Make no mistake. Boards matter. In early stage companies, success moved from 20% to 70% when independent boards were in place. At non-profits, constituencies are even more dependent.
Since women represent a mere 13% to 16% of directors on the largest public companies in the U.S. (GMI says less than 10% — less in other companies and countries without quotas), and minority women hold only 3% of these seats, our voices are muted. At smaller public companies (50 to 500m), only 7% of the directors are women. And, only 3% of directors at technology companies are women.
In the U.S., nearly 30% of public boards have no female directors. Of the remainder, the boards that do include a woman, the overwhelming majority have only a single woman. One woman director is not enough. Studies show that “tokens” (one) perform well below their ability in a group in which they are different. And numerous studies demonstrate that companies are more successful if they include two or more women directors. Further, about 2 ½% of board chairs are women in the U.S., while many countries have none.
When we look at women in business, the numbers are equally dismal. Twenty women serve as CEOs of the Fortune 500 – that is 20 out of 500 positions. And women earn 20% less than men. The inequities are substantial. Women make up about half of the work force, the majority of corporate shareholders, and the overwhelming majority of consumers. In fact, women make 85% of the buying decisions.
This inequity is unacceptable. If we don’t have diversity at the top, how can we be responsive to the mushrooming diversity of our population, our employees, our consumers, our suppliers, our shareholders? I used to say we would achieve parity by 2026. No more – we are stagnated. While 54% of boards say they seek to bring on women, only 18% of new independent directors added recently were women.
However, the Scandinavian countries are doing better. Norway requires that 40% of board directors be women; France has 20% now and moving to 40% within six years. Boards in the Netherlands will be 30% women by 2015 Even Turkey now requires that all public company boards include at least one woman.
Why the disparity? Because we all want to clone ourselves; we like people like us. We put people on our boards because we trust them, we know them; we admire them; we identify with them. We play golf with them. And, they will support us.
Myth #1: There are no women who are on a par with our existing members. Often this is corporate speak for “there are no available women who are CEO’s of the largest multinational companies.”
Traditionally, the majority of corporate directors have been drawn from two sources: active and retired CEOs. At the best boards, this model is passé. Diversity encompasses discipline, age, responsibilities, geography, and culture. Almost no board consists only of CEOs — nor should they. I challenge you to name a well thought through profile for a director that cannot be filled by a woman.
We recruited a director for a NYSE hardware technology company, which had just acquired a large software company in Texas. We defined the ideal criteria as a current CFO of a public software company, larger than our client, someone who had dealt with Wall Street, where diversity was a priority, with global experience, the ability to serve, having deep industry knowledge, someone young enough to serve for ten years, and, of course, someone with the ideal culture and without any conflicts. The director we recruited was CFO of a large, publicly traded, California software company – a fabulous black woman.
Myth #2: The only qualified women are already over committed.
Not true. Those are the only potential directors known to the board, the directors who tend to be recycled because they are trophies, because they are safe and because they are visible.
One reason for the diversity vacuum is the lack of contact that women have with powerful decision makers. Too often, we are essentially invisible. Carley Fiorina, former CEO at Hewlett-Packard, and now Med Whitman, is undoubtedly overwhelmed with board offers. Two Hispanics were recruited to the Wal-Mart board, and their board books will fill up quickly. But, many productive, excelling women and minorities tend to be overlooked because they are less visible as a result of focusing on career development and building their businesses.. Their relative newness to their position, the fact that they tend to be younger and don’t belong to the same organizations that the men do, the fact that they may have grown their own business, all diminish the likelihood that a CEO or director seeking a board member will know them or seek them out. Women with strategic experience and perspectives in numerous companies and industries can be invaluable.
Myth #3: We have someone in mind.
The single candidate approach doesn’t offer the board a selection of targeted, carefully qualified candidates. How do you know there isn’t someone better out there if you don’t even consider women?
Essentially, we put people on boards because they are just like us. We need to change this dynamic.
What can we do?
As a rule, we find out governance counts when something really bad happens. How do you know if you have a good board? You measure it – independently, confidentially and professionally. If there is no assessment, no accountability, how can shareholders know the board is effectively representing them and doing its job? Boards are struggling with the very thing they are insisting on from their management teams: accountability. Tools such as those offered by The Board Institute are now available to end this double standard – it only needs the will.
Steve Bartlett, the outgoing head of Financial Services Roundtable and former Mayor of Dallas, held a forum there recognizing good and bad boards, relative to diversity and women. It made a difference.
If each of us takes responsibility for one more woman or one more minority on a board, think of the impact!
We always include women on our short list of candidate finalists for boards of directors. Make no mistake. Qualified women are available. But, let’s not fool ourselves. Change is glacial. Not long ago, we conducted a search for a NYSE company whose CEO said to me “we are just not ready for a woman on our board”.
As the former CEO of CalPERS says, “You add water to water, you get water.” A group of people with the same backgrounds is going to come up with the same, predictable solutions. Diversity means that we have access to the best, period.
Equality in the boardroom is the logical springboard to equality in the workplace.
The dramatic untold stories are the 100s of companies, public and private, that have avoided crises and have succeeded, because of the advice and counsel of strategic, diversified boards of directors.
Unfortunately, we hear only of the failed boards. It is time to counter this drumbeat of negativity. If we don’t diversify and bring more women onto boards, the government will do it for us.
You can make the difference in helping boards fulfill their mission of adding value to the corporation and avoiding the big mistakes. You can raise awareness. You can serve on boards and help diversify them so they are responsive to all stakeholders. I urge you to do so. This is our opportunity. We have been patient too long.
If we don’t govern well, government and the regulators will do it for us.
Better boards = better companies.
Published in Governance Metrics International – 2011