Women valuable on boards

A rapidly growing body of research is showing that increasing the number of women on corporate boards immediately improves firms' performance.

The initiatives began in Norway, the world's third leading exporter of oil (behind Saudi Arabia and Russia), named in the 2001 United Nations Human Development Report as the best country in which to live (the United States ranked sixth), where 40 percent of all elected officials are women.

In 2002, Norway mandated that public companies fill at least 40 percent of the seats on the boards of directors of public companies with women (and similarly at least 40 percent of the seats with men). State-owned enterprises had until 2006 to comply, public companies until 2008. In times of ongoing change and crisis, thinking went, to make sense of global complexities and act in broad and imaginative ways to develop and grow, firms needed all minds at the table, which meant women in sufficient numbers to contribute to firm innovation and elevate strategic planning.

Finland, with a present-day board representation of 23.4 percent, followed with a requirement that women constitute at least 40 percent of board members in companies wholly owned by the state, an objective achieved in the spring of 2006, and in 2010, a corporate governance code saying that public companies need representation from both genders on the board of directors or have a very good reason to explain why not. Sweden (23.9 percent women on corporate boards) enacted a corporate governance code in 2008 for public companies, requiring them to strive for equal gender distribution on boards.

The ripple effects continue. An equality law introduced in Spain four years ago required public companies with more than 250 employees to "develop gender equality plans with clear implications for female appointments to the board" and ensure, by 2015, that at least 40 percent of board members are female. Joining Iceland, Finland, Denmark, Ireland and probably the Netherlands in mandating quotas, the French parliament gave final approval to a law requiring large companies to have at least 40 percent female board members within six years. In Italy, where women have only a 6.8 percent representation, the Italian lower house approved a 30 percent quota for corporate boards, and the Senate recently passed an amended version of the law. Rejecting quotas but clearly making gender equality a priority, the British government endorsed the conclusions of a report it had commissioned stating that by 2015 women should make up at least 25 percent of the boards of the largest British firms.

Are there implications for American companies? I recently had the opportunity as a visiting professor at the BI Norwegian School of Management, Oslo, to participate in the daylong international conference "Women on Board: Lessons From Norway." Here is what I took away: Given the differences in the society and culture (the Norwegian population is homogenous, ours is diverse), legal structures and the political and economic systems -- large sectors of the Norwegian economy, especially energy, are wholly or partially state-owned, for example -- there is little likelihood that the United States could or would mandate a gender diversity quota. (Depending on which statistics are cited, women make up between 12.3 percent and 15.7 percent of the corporate board membership of publicly traded U.S. companies.)

According to the most recent research, adding highly qualified and motivated women to corporate boards in sufficient numbers to be effective yields positive results. With a 39.5 percent representation on Norway's corporate boards, women have proven valuable "for their ability to exert a positive impact on tasks of a qualitative nature," "contribute to a diversity of thought," "broaden discussions on strategic issues" and generate "higher quality decision making related to organizational strategies and practices." A study of French firms during the 2007-08 financial crisis linked high performance with the number of women on boards. According to S&P GovernanceMetrics, U.S. companies with a board membership of at least 22 percent women show the highest board performance, and companies with 13 percent, the lowest. Catalyst has reported that companies with three or more women on their boards increase their return on equity 112 percent.

To be innovative and competitive, American firms will need all the best minds at the table. This was one of the reasons the Securities and Exchange Commission adopted in February 2010 a regulation that public companies and mutual funds must disclose whether or not diversity is considered when directors are named and, if so, how the policy will be implemented and its effectiveness evaluated.

This is only a starting point. In selecting directors, companies need to be increasingly mindful of the fact that to ignore half of the population is bad business. Women are not only qualified, they control more than 80 percent of personal and family expenditures, and in the rising generation, they are earning more undergraduate and graduate degrees than men across a spectrum of majors. Their far-sighted decisionmaking skills are imperative for economic change.

Dorothy Perrin Moore, Ph.D., is professor emerita of business and entrepreneurship at The Citadel.

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