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Why Facebook Needs Female Board Members

Posted: 04/10/2012 1:28 pm

As has been widely reported, Facebook -- the social media company about to go public and possibly become the world's 5th largest company -- has no female board members. Putting aside moral objections, why is this so terrible? Because it limits the company's profitability, curbs innovation and, scariest for investors and employees, increases the risk of a meltdown.

My sponsor CSRHub is adding a positive screen for companies with female board members. The company's founders, Bahar Gidwani and Cynthia Figge believe, as do most sustainability-focused consumers and investors, that female board members make for stronger companies, and they want to give consumers a method for identifying which companies satisfy this criteria.

Their premise is backed up by substantial data. In 2007, the Boston Globe reported on a Catalyst study that examined the number of female board members at Fortune 500 companies, using data from 2001 to 2004. The top quartile yielded 13.9 percent higher return on equity and a similar advantage for sales.

The EU is convinced that women must be included at the top of companies if Europe is to remain competitive. Viviane Reding, EU commissioner for justice, fundamental rights and citizenship, recommended quotas for female board membership, quoting Ernst & Young's study of Europe's 290 largest publicly listed companies. They found that the earnings at companies with at least one woman on the board were significantly higher than those without.

While the EU negotiates female board membership quotas, individual countries are forging ahead. Norway mandated that 40 percent of board members be women by 2008 and has since surpassed its goal. Belgium, France, Italy, the Netherlands, and Spain have all adopted legislation that introduces gender quotas for company boards, to increase competitiveness and economic return.

Another benefit of female board members: reducing groupthink, or the tendency to avoid questions or suggestions that go against group norms, which produces new ideas and enhances innovation and can reduce risk too. In fact, some argue that this is was the cause of the financial collapse. As the UK trade pub People Management put it,

"...in the aftermath of the financial crisis, is the idea that a cocktail of machismo and boardroom group-think allowed casino-style investment decisions to escape scrutiny, raising the question of whether the world would be in a better place today had Lehman Brothers and the like had a few more sisters."


Indeed, risk reduction might be the most compelling argument, especially for those who were invested in the market in 2008 and saw their portfolios fall by 30 or 40 percent. Scores of journalists point out that there were very few women executives and board members involved in the mortgage melt down and postulate what might have happened had there been more women at the top. This has been true at least as far back as the 2002 collapse of Enron, whose culprits were male and whistleblowers all female.

Yet despite the evidence, results to date show very slow progress for women board members in corporate America. GMI Ratings, a source for CSRHub, just published its 2012 Women on Boards Survey. The average board is only 12.6 percent female; 29 percent still have no women at all. The most frightening? Between 2009 and 2011, women's US board participation increased only .5 percent, one third of the (also low) average of 1.4 percent for developed countries.

As for Facebook, the lack of gender inclusion is also just plain bad business. As the feminist group Ultraviolet points out, "Women are responsible for nearly two-thirds of the sharing that happens on (Facebook). In addition, women account for more than 70 percent daily fan activity on the site, which is a huge source of revenue for the company." Wouldn't a female board member be first to recognize ideas that appeal to the company's largest group of users? To avoid behaviors that might alienate women?

I wouldn't stop using Facebook because of its board composition. But I sure won't invest in it.