Appointing Women to the Board – Why and How?

When addressing gender diversity in the workplace, the topic of women’s representation in the board of directors has become the elephant in the room.

On the bright side, more and more stakeholders are in favour of bringing gender parity. According to the 2018 Annual Corporate Directors Survey by PwC, 95% of directors agree that ‘diversity brings unique perspectives to the boardroom.’ 84% state that it also enhances performance and 46% confirm that it is ‘very important’ to have more female board members.

Still, women hold 24% of S&P 500 board seats. The situation with start-ups is even worse as they are financed primarily by venture capital or angel investors, predominantly represented by males. In 2019 just 2.8% (a record hide!) of U.S. capital investment went to all-female founding teams.

What are the pros for including women in boards of directors?

Several McKinsey studies confirm that team diversity leads to greater innovation, improved decision-making, and stronger company performance. Is the same valid for yet another of the company’s teams – the board of directors? The answer is ‘yes.’

Greater Innovation:

Women bring new experience and topics, which broadens the capacity of the organization. According to Spencer Stuart’s 2018 Board Index, female directors have more financial, technological and/or consumer experience. They are also more likely to set new areas for consideration by including social issues like human rights, climate change, and income equality or by introducing the concerns of a wide set of stakeholders. An additional advantage is the fact that increasing the number of women on a team leads to improving the collective intelligence as professors Anita Woolley and Thomas W. Malone proved in their research.

Improved Decision-making:

Women tend to get deeper in researching the answers to difficult situations. They prefer to make sure and are not afraid to admit that they do not understand everything. Women express their independent views because they do not have to consider their networks. Moreover, the presence of female board members forced a movement away from closed social groups and in-group favouritism. In addition, women focus on collaboration and improving communication among both members and management.

Stronger Company Performance:

A 2019 research, published in the Journal of Empirical Science, suggests that female board members contribute for better acquisition and investment decisions and for less aggressive risk-taking because they moderate the overconfidence of male CEOs. As a result, companies that enjoy women presence in their board of directors have secured better financial and shares performance. A research of 516 firms during the financial crisis of 2007 to 2009 showed that female board representation reduced the negative impact of the crisis on three indicators – value, return on assets, and return on equity.

Additional benefits of getting more women on board are evident in a study of 23 Norwegian directors. In Norway it is mandatory to appoint female board members, making it a perfect environment for research. Women improved the boardroom environment and culture. They introduced higher quality monitoring of and guidance to management. They inspired positive changes in the behaviour of men. And they oversee a working process, which was more systematic.

Still, what are the drawbacks?

For one thing, some stakeholders already express their fatigue with the topic. 52% of the directors in the 2018 Annual Corporate Directors Survey think that the motivation for appointing women on board is becoming a political issue, while 48% believe shareholders are ‘too preoccupied with diversity.’ In addition, some express their worries that any appointment, made only to fit a quota, will lead to disputes and hurdles. It might result in extending the decision-making and inspiring conflicts. In addition, poor management of the board creates distrust and dissatisfaction.

What is more, it seems that investors punish companies which appoint women to the board. Isabelle Solal and Kaisa Snellman researched the board composition and financial data on 1,644 public companies in the U.S. between 1998 and 2011. They found out that after an appointment the market value of the respective company decline for a period of two years. The investors’ reactions are a result of their belief that when companies appoint female board members they shift their priority from maximizing shareholder value to meeting social goals.

Ultimately, you said ‘yes’ to appointing female board members. How to do it?

As it was already mentioned, some states set quotas to address gender disparity and speed up the processes that are already taking place. Even if not taking so drastic measures, experts believe that the pressure from media and institutional investors will push the business to address the issue sooner or later.

For whatever reason you have decided to get more females on board, if you want to turn it into success, follow the next three principles.

1. Two is more than one, and three is even better

Appoint a critical mass of women to the board. If you have nine to thirteen members, one woman will not make a real change, as she will often feel ‘isolated’ and ‘marginalized’ according to Alison M. Konrad and Vicki W. Kramer. In the 2018 Global Board Diversity Tracker it is stated that when having at least one female colleague, ‘women are more likely to speak up and be heard.’ While Egon Zehnder believes in the ‘magic number’ of three. If you face the problem with lacking member mandates, as it is the case with half of S&P boards, you could expand the size of the board. Once the old guys retire, the board can return to its initial size but this time with more diverse perspectives.

2. Look for diversity beyond just gender

Numerous researches prove that diversity is improving the productivity of any organization. Further, studies on gender show the positive aspects which female characteristics bring to the business environment. However, seeking diversity only in terms of men and women, might not bring impressive results. Companies should extend their criteria and include skills and experience. Furthermore, you could even aim at achieving cognitive diversity and include expertise or features that are totally different from the ones that the other members have.

3. Pay attention to what you point out

When was the last time that someone announced they have a new male board member? So, why do most of the press releases include the information that a woman in joining the board? Does it sound gender-neutral? Or it is a hint that the appointment is just a diversity initiative? Thereby, keep the statement limited to the new member’s capabilities and professional skills.