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Attention Shareholders: Women in Boardrooms Are Good for Business

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Women make up almost half of the workforce at middle management, but despite special mentoring and training programs, the pipeline trickles to a halt just shy of executive and board positions. As a result, the number of women in UK and U.S. boardrooms has risen sluggishly on average only one or two percent each year.

These data prompts the uncomfortable question: Why is progress so slow? This makes no sense in the business world especially in light of cogent studies demonstrating a strong business and financial case for increasing the number of female board members.

Studies in the UK's Daily Mail by Sodexo and Catalyst noted that, "companies where women make up a third of board members made on average 42% more profit, and shareholders received 53% higher returns." These figures are astonishing, and yet very few business people are aware of them. Why aren't shareholders more concerned?

The preliminary analysis of our University of Washington research project, "Building Better Boards," might have the answers. We have conducted one-on-one interviews with more than 65 male and female board directors from the USA, UK, Europe and India. Participants serve on multiple boards and collectively they've shared their personal insights and experiences. Many of our interviewees were uncomfortable talking about the dearth of females on boards. "The women are just not out there," they claimed. This is a ludicrous assertion given that in many countries women have risen to the highest leadership and professional positions. Germany's Angela Merkel and Britain's Margaret Thatcher are just two examples of women who led major political and economic transformation in their countries. More recently, Christine Lagarde, the Managing Director of the International Monetary Fund, was appointed to tackle the mammoth task of strengthening the international financial system. Women are clearly out there.

The UK's Davies Report cites attitude, bias, and gender prejudice as key factors causing women to be under-represented in boardrooms. In my experience as a global leadership coach, many executives, men and women, turn a blind eye to old-fashioned views of gender roles. When women's contributions in the boardroom are acknowledged, it's often because they're perceived as good listeners and empathetic. One chairman told me "men tend to behave better when women are at the table." The idea that women in power operate differently from men, have better interpersonal skills, and are more collaborative may be appealing, but there are more compelling and practical reasons.

Recently, Janet Yellen, the main contender to lead the Federal Reserve, clearly demonstrated she's going to be no pushover. Yellen stood her ground on her strategy for the Reserve despite aggressive questioning from many senators. Ranked by the Wall Street Journal as having the best economic predictions of any Fed policy maker over the past decade, she is more qualified and her predictions more astute than her recent male predecessors.

When Iceland's financial systems collapsed during the global crisis, women played a major role in the reconstruction of the economy. Audur Capital, founded by two women, Halla Tómasdóttir and Kristin Petursdóttir, not only survived the crash, but was also one of the few firms in the Icelandic financial sector turning a profit. It was a woman prime minister, Jóhanna Sigurðardóttir, who restored the economic stability in the country -- without a bailout.

It makes good business sense to invite women to serve on a board. Like all competent board members, they should demonstrate strong financial-audit and strategic expertise and have a proven track record of delivering results. This is the "stuff" that outstanding board members are made of, report Groysberg and Bell in the HBR Blog Network. The 30% Club in the UK and 20/20 Women on Boards in the USA, are both advocating increasing the number of women on boards by 20-30% in the next six years. At the current rate of change it will take decades for companies in the UK and USA to come close to achieving a gender balanced board.

If we want a stable and growing economy, it's time for investors to exert pressure on Chairmen and CEO's. When a dissident shareholder, Third Point LLC, exerted pressure on Yahoo's board, Scott Thompson, the CEO was dismissed and replaced with Marissa Mayers. Under her leadership, the company's stock price has risen by 73% and hundreds of millions of dollars have been returned to shareholders.

The financial data are compelling. It's time for shareholders and customers to demand a higher return on equity by insisting on gender-balanced boards. Recently Twitter succumbed to "tweet" pressure when in the run up to its November IPO, many customers where stunned to realized that there were no women on its board. In response, Marjorie Scardino, the first woman to lead a Financial Times Stock Exchange (FTSE) 100 company, was appointed to Twitter's board. Coincidently, she has also been outspoken about the dearth of women on company boards. The message is clear. When women are at the top table, business is stronger and more profitable.

This is a continuation of the series Building Better Boards and the impact of gender diversity in the C-Suite.