Women on Boards – Still an Underutilized Resource

According to Equilar, as of the end of 2021, women held 26.7% of the Russell 3000 company board seats. The average year-over-year increase is 2.14%, with the largest increase of 3% from 2020 to 2021.

At this rate of change, women are expected to hold 50% of the corporate board seats by 2030. To cut the estimated timeline in half, and reach the goal by 2026, the percentage of women added to boards would need to increase by 5.8% year-over-year, almost doubling the percentage increase from 2020 to 2021. Forty-eight percent of the 598 directors who joined boards in Q4 2021 were women. This is consistent with Q3 2021, and the highest quarter-over quarter percentage increase ever. Eighty-seven percent to the seats gained by women were seats that were added to a board rather than replacements for existing seats.

In an article, the Harvard School of Public Health noted that companies with women directors on their board also perform better than those without women by specific metrics. For example, when Fortune-500 companies were ranked by the number of women directors on their boards, those in the highest quartile in 2009 reported a 42 percent greater return on sales and a 53 percent higher return on equity than the rest. These findings are consistent with statistics showing that gender diversity is positively correlated with performance metrics such as ROE and with greater innovation and creativity for companies.

Companies that wish to establish gender balance and equity on their Boards need to actively recruit women, particularly minorities, and seek them out beyond the places where Directors have traditionally been found such as other companies’ CEOs and Directors, top executives both internal and external, and “old boy” networks. Many men will need to let go of gender stereotypes regarding finance, technology, and leadership, and Boards that add women may need to pay attention to gender issues such as mansplaining (the tendency of some men to explain things to women, even in areas of women’s expertise), interrupting, taking credit for women’s ideas, etc.

That said, while recruiting for Directors, male or female, has a lot in common with recruiting top executives, the areas of dissimilarity are important. Here are four important areas that, while some may be factors in executive hiring, all are critical areas in recruiting Directors:

1. Finance: Directors are directly accountable for the financial health of the company and need to subject both financial strategy and performance to financing operations (including debt), managing earnings, etc.
2. Risk Management: Directors must deal with investigations, litigation, public disclosure, restatements, internal controls, and audits. Directors will also deal with conduct and ethics issues, particularly where they involve senior management.
3. Management Performance: While all managers deal with performance assessment, Directors must assess the performance of the CEO and the rest of the C-Suite, and with succession planning for the top of the organization.
4. Executive Compensation: With many companies coming under fire for disparities between executive pay and that of the rest of the organization, Directors must balance the need to pay for top talent with the impact of executive compensation, employee engagement, and the company’s public image.

If a company is serious about having women on their Board who are directors that add material value and insight, they will seek out women who, ideally, have demonstrated experience and aptitude in these four areas, particularly with companies of similar size and in similar industries and they may need to provide coaching and mentoring in these areas. In addition, directors must be leaders and understand the complex relationship between the Directors and company executives.

The business case for gender equality is clear and well-supported by evidence. Women bring qualities of thinking and engagement that are different from and complementary to those brought by men. In today’s business environment companies can ill-afford to miss these qualities. Finding  exceptional Directors, men or women, can be a long difficult process, and outsourcing the search for and vetting of candidates is likely to produce the best results and to insulate the company from the possibility of costly errors. An effective recruiting partner will know how to identify the right combination of skill and experience to find the top candidates for a Board position.

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