For Struggling Boards, the Answer May Be Closer Than You Think

By Sandgren, Melissa | Kennedy School Review, Annual 2012 | Go to article overview

For Struggling Boards, the Answer May Be Closer Than You Think


Sandgren, Melissa, Kennedy School Review


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There is a scene in The Iron Lady film where the actress who plays Margaret Thatcher is walking defiantly down a marble hall; the camera zooms in on her solitary pair of high heels amidst a sea of squeaky parliamentarian loafers. Thatcher pushes open the door to the lady's restroom only to find a lonely ironing board waiting to press the suit of one of the countless MPs whose loafers we have just seen on the screen. The leitmotif of the scene could not be clearer: this is a world where even the women's bathroom is designed to support the men.

To those of us who live in Western democracies, these images--and the pronounced gender disparities they represent--may seem antiquated. Yet in the United States today, women constitute only 3.6 percent of Fortune 500 CEOs and hold only 16.1 percent of Fortune 500 board seats, despite the fact that they make up 51 percent of the population as a whole (Soares et al. 2011a). Contemporary boardrooms, both in America and abroad, are not nearly as far removed from Thatcher's era as we would like to believe.

Throughout the history of the struggle for gender equality, moral- and fairness-based arguments have been used to advocate for women's rights. Today, however, there is a new dimension to the gender discussion: corporate profits and performance. For more than ten years, Catalyst, a nonprofit focused on women and business, and McKinsey & Company, a global consulting firm, have each tracked the effects of diversity on corporate performance.

The research from each organization suggests that gender diversity in the boardroom is not only the right thing to do, it's also good for business and, by extension, the economy as a whole.

At just 16.1 percent, the overall proportion of women on Fortune 500 corporate boards is low. A 2011 study by Catalyst found that women filled between zero and 18.3 percent of Fortune 500 company board seats (Soares et al. 2011a, Appendix 7). For women of color, the number is even worse. In 2011, non-White women held only three percent of board seats, and more than two-thirds of companies had no women of color on their boards at all (Soares et al. 2011a).

The dearth of women on corporate boards is not specific to the United States. Globally, women represent 9.8 percent of board members, according to a 2011 study from Governance Metrics International (2011), an independent firm rating corporate governance. Among industrialized economies, the number swings from less than 1 percent in Japan to 35.6 percent in Norway. Although the percentage of women on corporate boards in the United States is incrementally increasing--up from 15.7 percent in 2010 to 16.1 percent in 2011--at its current rate of increase, it would take more than eighty-four years for women to gain equal representation on boards.

However, there may be reason to think that things will speed up. Research by Catalyst and McKinsey & Company finds that, on average, Fortune 500 companies with three or more women on their board of directors--often deemed a "critical mass"--substantially outperform companies without any female board members (Kanter 1977, cited in Carter and Wagner 2011). Over a four-to-five-year period across many different industries, these companies showed, on average, an 84 percent increase in return on sales (ROS), a 60 percent increase in return on invested capital (ROIC), and a 46 percent increase in return on equity (ROE) relative to their peers (Carter and Wagner 2011). Figure 1, courtesy of Catalyst, highlights the difference in companies with zero women on the board of directors (WBD) compared to those organizations with three or more (Carter and Wagner 2011).

Companies with women on their boards see gains beyond their balance sheets. McKinsey's 2011 study identified nine key drivers of a company's long-term health, including such factors as direction, leadership, and organizational culture. …

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For Struggling Boards, the Answer May Be Closer Than You Think
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