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Kay Koplovitz

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Diversity on Corporate Boards: Moving the Needle -- Why Critical Mass Matters

Posted: 07/20/2012 2:53 pm

The New York Stock Exchange/Euronext recently held a conference titled "Moving the Needle" that served as a significant step towards helping diversify membership on Corporate Boards. This initiative is bringing together CEO's, Chairs of Nominating Committees, and women and minority candidates endorsed by them. They met in sessions to prepare candidates for board service and infuse new talent into the board search process.

Why is this special initiative necessary? It is pretty easy to see that the corporate boards of the Fortune 500 companies do not have adequate representation of either women or minorities. Currently, only 16 percent of Fortune 500 board seats are filled by women and 3 percent by minorities. Many of these boards produce consumer products and services, and this in spite of the fact that women make nearly 80 percent of decisions on these purchases. These boards lack proper representation by women.

Importantly, there is evidence that diversified boards lead to better financial performance. In a study conducted by Catalyst in 2011 of the performance of boards with 3 or more women members, the results might surprise many: These companies had the following results:

  • 53 percent higher return on equity
  • 42 percent higher return on sales
  • 66 percent higher return on invested capital.

There may be many factors contributing to these performance levels, but based on factual analysis, it is clear that women add value to the board. Many other countries have set quotas for the percentage of women on corporate boards. Norway led the way with a mandate in 2003 to have at least 40 percent of the board seats filled by women by 2010, which they have met and exceeded. Britain has established a 30% Club but no mandate, while Spain did follow Norway by setting a quota of 40 percent women board members by 2015. In the United States, the quota system does not have much support. I agree with that position, but I also believe that setting goals is important.

Last November, The Women's Forum in New York and the Partnership for New York recognized 52 tri-state corporations that have at least 20 percent of their board seats filled by women at a breakfast convened at the NYSE/Euronext. At that "Breakfast of Champions", it was proposed that all boards set their own goals for increasing the number of woman on their boards.

Another organization, 2020 Women on Boards has proposed that US Boards set a goal of having 20 percent of their board members be women by 2020.

So how do we go about achieving parity for women and minorities on boards? Here are a few steps corporations can take.

  1. Set the Tone at the Top. The Board and the CEO must make diversification a priority.
  2. Understand the expertise that sits around the board table and seek qualified candidates to fill those seats from expanded sources beyond those presented by search firms.
  3. Insist that every search for a board seat have a diversified slate of candidates and not fill the seat until this mandate is met.
  4. Take the long view on the diversification the board wants to meet and stay the course until this goal is fulfilled

I applaud the NYSE/Euronext for taking leadership for this forward-leaning initiative. Until and unless this issue is brought front and center with boards, the balance of men, women and minorities will not be met. The leadership being taken by NYSE/Euronext is critical for raising the bar.

 

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