Here’s How We Can Get More Women in S&P 500 Boardrooms Emily Stewart
March 24, 2016

Lack of gender diversity in the boardroom is a problem in corporate America, and fixing it will require a concerted effort from many actors, both private and public.

Women hold just 16% of board seats in the S&P 1500, and in the S&P 500, there are still seven companies with no women directors at all, despite mounting evidence suggesting that having women in positions of power correlates with improved firm performance. We call  this group of companies the “Misogynist 7”: Discovery Communications (DISCA – Get Report) , Garmin (GRMN – Get Report) , Diamond Offshore Drilling (DO – Get Report) , Linear Technology (LLTC – Get Report) , Qorvo (QRVO – Get Report) , Concho Resources (CXO) and Dentsply Sirona (XRAY) .

The U.S. Government Accountability Office estimates that it would take another 40 years for women to reach parity with men on corporate boards even if female directors filled seats at twice the current rate, but there is much that can  be done to get there faster.

First, change needs to happen in the boardroom itself.

“The responsibility for fixing [gender diversity on boards] rests very much with the nominating and committees of boards and with the boards themselves,” said Lawton Fitt, a former partner and managing director at Goldman Sachs. Fitt is a director at the Carlyle Group, Ciena Corporation, Progressive Corporation and ARM Holdings.

Boards tend to draw from their own networks, which often include individuals who are just like them — historically, that’s been mostly older, white men. A boardroom full of older, white men is inclined to lean toward choosing other older, white men they know and have worked with in the past.

“The existing independent directors of those companies [without women on boards], and insiders too, they have not made the decision to be inclusive in the search for new board members,” said Janet Hill, who sits on several boards and serves as principal at Hill Family Advisors, where she oversees her family’s assets and investments. “It’s impossible to live in today’s world and have male executives who don’t know female executives. It isn’t a lack of candidates. They just haven’t decided to do it. Maybe they think it’s not necessary, or it’s not valuable, or it’s just outside their wheelhouse.”

Hill, who has served on 10 different boards throughout her career, is currently a director at the Carlyle Group, Wendy’s Company and Dean Foods Company. She landed her first board seat in 1987 as a public member of the New York Cotton Exchange.

Boards tend to focus their candidate searches too heavily on revenue-generating roles that are more commonly held by men, said Wendi Lazar, a partner at New York law firm Outten & Golden LLP and co-head of the firm’s executives and professionals practice group. The positions most often occupied by women in human resources, communications and legal affairs don’t fit the revenue-generating bill and therefore put them at a disadvantage. “It’s very unusual to hire a general counselor, an HR person to run a board,” Lazar said.

Part of the solution is getting women into more executive roles that are revenue-producing. But boards also need to expand their horizons and deepen the pool when searching for new directors.

“Part of the responsibility rests with the people who are defining what it is they’re looking for in a director,” said Fitt.

To find more diverse directors, not only in terms of gender but also ethnicity, age and geography, boards may have to look beyond the C-suite and their own industries for candidates. Nominating committees might eye the nonprofit sector, the academic community, accounting, the legal sector and even the armed forces to find candidates who, while perhaps nontraditional, are just as good.

“It might be a different business model, but a very similar set of skills that could be transferred into the boardroom,” said Aaron Dhir, a professor at Osgoode Hall Law School and senior research scholar at Yale Law School and  the author of 2015 book Challenging Boardroom Homogeneity.

Corporate experience is something most boards are still looking for, said Lee Hanson, vice chairman at executive search firm Heidrick & Struggles, but in that case, they may just need to look a rung or two down the ladder. “I’m not talking about digging way down in the organization, but it could be a couple of levels down from the CEO in a larger company who’s really been given a rotational opportunity because they’re viewed to be high potential,” she said.

Looking Beyond the Board

Investors have a role to play in encouraging inclusive behavior as well, and as time goes on, that will only increase.
“It’s going to take the resolve of existing boards to do this, or they’ll be forced by some outside force. One of the outside forces might be their investor base, and as their investor base itself increases, and as institutional investor operations are led by women, they are going to ask the question: Where are the women on your board?” said Hill. Today, it’s not something most investors really consider.

That’s not to say progress isn’t being made GAO statistics indicate women comprised 22.8% of new board directors in 2014, compared to 11.7% in 1998. Heidrick & Struggles projects women will account for 50% of new board directors in the United States by 2024.

Many boards enlist executive search firms to help them identify potential directors and increasingly emphasize diversity as an important part of the process.

“There is more interest as well as commitment to bringing more diversity in the boardroom than there was five years ago,” said Julie Norris, senior client partner at executive search firm Korn Ferry.

Companies like Heidrick & Struggles and Korn Ferry are expert in identifying and proposing potential board candidates and they can help identify women who, while qualified, aren’t necessarily on the radar for the company with the vacancy.

“Clients find that there are remarkable and very capable senior women executives, but they typically were not as visible or as easy to identify or as known to, perhaps, existing board members or networks that the board traditionally used to identify candidates. But because we as a firm have prioritized getting to know great women, we are able to surface them for our clients,” Norris said.

Critics say this isn’t actually true and that executive search firms are actually part of the problem.

“I have historically seen search firms lag in this area,” said Hill. “They will do a search, but unless the board says we would like women candidates among the mix, they won’t necessarily provide the women candidates. They are not in front of the issue.”

Will Government Step in?

There are legislative avenues for getting more women into the boardroom as well, if not by force then at least by upping disclosure and changing discourse.

Some European countries have implemented quotas requiring companies to meet a minimum proportion of women on boards. In 2015, Germany passed a law requiring the country’s biggest companies to appoint women to 30% of seats on their non-executive boards. Norway has had such a law in place since 2003 demanding 40% of corporate board members to be women.

Dhir, the author of Challenging Boardroom Homogeneity,  has studied Norway’s legislation extensively. While at first the law was met with resistance, today, most of the country’s directors and executives that he interviewed agree it was a good idea.

“After having seen the law in action, having experienced its effects, they changed their minds,” he said. “They felt that gender diversity on the board had made a difference to the overall governance culture of the firm. They felt, for example, that women directors had a greater tendency to critically engage with corporate management, to ask the tough questions. They felt that the women directors, because they didn’t come from the same old boys’ networks as the males, were more independent.”

While Dhir says he believes in the U.S. there is a large enough talent pool to accommodate quotas, they’re not likely to arrive anytime soon. “Quotas are not politically viable in the U.S., they are also probably unconstitutional,” he said.

He suggested one alternative might be an explain-or-comply rule, a regulatory approach used in countries like the U.K. and Canada that sets a certain standard and asks companies to disclose whether or not they comply. If they don’t, they’re not forced to, but they have to explain why.

“I think that kind of disclosure rule…could nudge corporate America a little harder than the current rule, which is pretty soft,” Dhir said.

Currently, companies must provide disclosures in their proxy and information statements about diversity, per a rule implemented in 2010. However, the rule gives no guidance on the meaning of the word diversity, so companies can define it any way they like. As a result, many instead focus on experiential lines instead of factors like gender and race.

There are other laws and rules being proposed, including the Gender Diversity in Corporate Leadership Act put forth by U.S. Representative Carolyn Maloney in March and the Gender Diversity Investment Act proposed by U.S. Representative Don Beyer in 2015, that could also push gender in corporate governance in a more equal direction.

Ultimately, most believe that getting women into the boardroom is a question of time.

“We all wish that things would move more quickly,” said Norris.

But  as more and more women get into the boardroom, the pace is likely to pick up.

“The one thing that definitely it does achieve in having women in these higher-ranking positions is access, because it’s no longer a novel idea to add someone,” said Marjorie Mesidor, a workplace discrimination attorney at New York law firm Phillips & Associates. “Once they add one, it really does open up the gates for others to come.”

“A coordinated push to eliminate gender disparities in the boardroom and C-suite could go a long way toward improving opportunity for women to advance within the workplace,” said Judith Rodin, president of the Rockefeller Foundation, a private foundation that seeks to “promote the well-being of humanity throughout the world.” Rodin was previously president of the University of Pennsylvania, making her the first woman to lead an Ivy League institution, and serves on the boards of both Citigroup and Comcast, among others.

Once more women are in positions of power, the easier it is for more women to achieve positions of power.
“The first one’s the hardest to crack,” said Fitt, the former Goldman Sachs director.

Recalling a board she once sat on that was by her estimate about 40% women, Fitt emphasized that real accomplishment comes when gender diversity reaches such a magnitude that it no longer matters.

“It was really wonderful, because gender stopped being an issue,” she said. “Once you get to the point where nobody’s counting anymore, that’s when you’ve been successful.”