by Cydney Posner
As reported earlier this year on Bloomberg, when activists seek to replace directors at target companies, they rarely look to women. Bloomberg analyzed data regarding five of the biggest U.S. activist hedge funds, each managing at least $18 billion in assets. The data showed that, since the beginning of 2011, these funds have together sought at least 174 board positions, winning 108, but have nominated female candidates only seven times, with five succeeding. That represents only 5% of the total. At that rate, the data makes the boards of companies in the S&P 500 look like they were selected by the National Organization for Women: over the same period, women were nominated to fill about 26% of open seats at S&P 500 companies, according to Spencer Stuart Inc., and about 19% of directors at S&P 500 companies are women.
According to the executive director of the Conference Board’s Governance Center, quoted in the article, “companies targeted by activists would benefit from having more women directors. ‘If you believe that diversity on boards is critical for long-term sustainable growth, then you have to wonder whether activists care about this — or simply want to get the company’s stock price up quickly.’” Board diversity is believed to be critical because research has shown that women directors have a salutary impact on companies’ financial performance and governance matters. For example, a recent study from the Peterson Institute for International Economics demonstrated that the presence of women in corporate leadership positions (both on corporate boards and in executive positions) may improve firm performance and that “the magnitudes of the correlations are not small.” The study looked at 21,980 firms headquartered in 91 countries, concluding that, for “the sample as a whole, the firm with more women can expect a 6 percentage point increase in net profit, while overall median net profit was just over 3 percent.” (See this PubCo post.) Similarly, it was reported that, in May, Morgan Stanley indicated that companies with more women in the ranks had better returns and lower volatility. And Bloomberg has argued, while “[e]quality is a worthy goal on its own terms, of course….for the corporate world, the better rationale for gender diversity is financial…. Companies with at least one female director had better returns for six straight years.” Moreover, according to Bloomberg, “there’s a pile of research showing that boards and other leadership panels with 50 percent women think more critically, which may explain the better results. Group dynamics change for the better when both sexes are present. Diverse groups solve problems better than homogeneous ones do, possibly because the men and women monitor each other’s performance more closely.” (See this PubCo post.)
One commentator cited in the Bloomberg article suggested that board diversity should improve as younger generations move into leadership positions. But another approach that may be more expeditious is reflected in another recent Bloomberg article — put more women in charge. Not surprisingly, women in leadership positions find it a lot easier to find other women who are qualified to serve as board members. An analysis of 1,000 U.S. boards by the advocacy group 2020 Women on Boards showed that, when women are in leadership positions, such as CEO or board chair, women hold over 27% of board seats, compared with less than 18% when men hold those positions. The study also showed that bigger companies “are increasingly willing to hire female directors. Among the more than 1,800 businesses monitored by the group, 334 still have no women in those roles, and that group is dominated by smaller companies….” The study also showed that about three quarters of female directors were serving on only one board, a finding that the group’s founder “said belies the myth that there is only a small group of qualified women who must be shared among several companies.”
Why are companies led by women faring better on gender diversity? PwC’s annual survey of almost 800 public company directors reveals that men and women seem to have distinctly different views about the value of having women on boards: 63% of female board members said that gender diversity was “very important”; only 35% of male directors agreed. Of the female directors polled, 80% “very much” believed that board diversity leads to enhanced board effectiveness and 74% “very much” believed it would enhance company performance, compared to only 40% and 31% of male directors for those respective metrics. (See this PubCo post.)
Soapbox: Of course, as discussed above, the research data shows that these women are right.
Similarly, the 2016 Global Board of Directors Survey of more than 4,000 directors of both public and large, privately held companies from 60 countries conducted by Spencer Stuart, the WomenCorporateDirectors (WCD) Foundation and several academics also found that women attributed the reasons for the consistently low numbers of women on boards to different causes than did men. For example, 69% of female directors in the 55-to-60 age group attributed the low numbers to the failure to rank diversity as a top priority in board recruiting, while only 19% of men in that age group identified that as the main reason. In that same age cohort, 39% of male directors said the “lack of qualified female candidates” was the primary reason for the low numbers of female directors, while only 8% of female directors cited that as the main reason. However, there may be a generational shift in attitudes: in the over-65 cohort, only 15% of men attributed the low numbers of female directors primarily to the domination by men of traditional networks, while 43% of women directors in that group identified that as the primary reason. By comparison, 29% of younger male directors (age 55 and under) said that the main reason was that traditional networks tend to be male-dominated, and 40% of women directors in that same cohort agreed. One of the study authors commented that “‘[i]t’s often hard to see an informal ‘network’ if you are in the middle of it, but you can see it very clearly when you’re on the outside.’” (See this PubCo post.) But having women as part of a network helps. The founder of the 2020 advocacy group observed that “‘[w]hen you have a woman on the board, they are going to be able to help find more women.’”
The goal of the advocacy group is to ensure that women hold at least 20% of all board seats at U.S. companies by 2020. Currently, women hold 17.9% of those seats. The article reports that almost 90% of women-led businesses already meet that goal. According to the article, “the advocacy group said it sees signs of progress. It runs a campaign about once a month to target a company without female directors, but it’s getting harder to find a scapegoat that would be recognized by the general public….[The founder said that there] ‘are very few companies that hold the position ‘no women, no way,’ ….It’s more that they really, honestly say that they don’t know where to find them, or they just don’t want to take the time, or the search is too expensive.’”