I was lucky enough to attend several stimulating panel discussions at the AIC, one of which was on the issue of gender diversity and corporate management. Gender diversity and corporate management has become an increasingly topical issue in recent years due to two major factors. First, the debate has been transformed from an issue of equality to one of superior performance. The Credit Suisse Research Institute produced a report in August 2012 that found that companies with one or more women on the board delivered higher average returns on equity, lower gearing and better average growth from 2005-2011. This obviously has profound implications for how firms approach board appointments and talent management in general. Second, government intervention in the area has risen swiftly: seven countries have passed legislation mandating female board representation and eight countries have set non-mandatory targets in the past five years. Both the idea and practice of gender quotas in the corporate world remain highly divisive. Furthermore, highly visible figures in the private and public sectors, such as Melissa Mayer of Yahoo, Sheryl Sandberg of Facebook, and Ann Marie Slaughter of Princeton, have brought the issue to public consciousness through recent pronouncements and publications. So it was an astute and timely move by the conference organizers to host a panel discussion on gender diversity.
There was broad consensus among the panelists as to what was at stake. Eileen Murray, chief operating officer and co-president of hedge fund Bridgewater Associates, held that it is crucial for more women to be on corporate boards amid the current ‘war on talent’. A recent UNESCO report showed that the proportion of female graduates globally came to a median average of 54% in 2010. Considering this and the reality that over 50% of current human and intellectual capital is female it makes sense to include more women on boards; it’s simply a matter of broadening the talent pool available to companies. However, as Murray rightfully pointed out, this is about more than female representation on boards. One of the complaints most frequently made by appointment committees is that there is a dearth of qualified women in senior management positions. Thus, training and positioning more women for senior management roles is clearly a prerequisite step for increasing female board representation.
Nicholas Sallnow-Smith, chairman of the Link Management Ltd, resisted the imposition of formal gender quotas for board membership on the grounds that quotas represent external interference with the rights of the shareholders of the company. If the overarching objective of this kind of research is investigating board effectiveness then this intuitively comes from tapping the broadest possible talent pool. Moreover, Sallnow-Smith argued that boards should be more reflective of the community in which they do business. This ties in with the idea that boards with more women are more reflective of the primary consumer decision maker, in that most household consumption decisions are made by women. In this light, more consumer facing industries already rank the highest amongst those with a high proportion of women on boards. Raw materials and industrial companies rank lowest.
Fan Cheuk Wan, Credit Suisse’s Head of Research (Asia Pacific) for private banking and wealth management, outlined the high positive correlation between the degree of gender diversity on corporate boards and financial performance. However, she said this is mitigated somewhat by the fact that companies with a more diverse workforce are larger companies with relatively higher corporate governance standards than small cap companies. This points to the possibility that a causal relationship is not at play so much as selection bias or a signal effect: the appointment of women to boards provides a signal to the market of good corporate governance and that the company is already doing well. The endogeneity problem in this case – that companies performing well appoint women to the board rather than women on the board causes a rise in performance – is indicative of problems besetting most research that use observational data: it is difficult to rule out competing explanations due to the possibility of omitted variables or the absence of controlled comparisons.
What struck me most about the three speakers and from engaging with the issue itself is how gender diversity is really an upstream problem – or, as it should be framed more positively, an upstream opportunity. Assuming that gender diversity is a good thing for corporate performance, or any diversity for that matter (and there are a whole host of reasons to think this is so: diversity enhances the efficacy of group performance and overall group intelligence, provides a better mix of leadership skills, provides a broader talent pool, and so on), then the problem isn’t enough women on boards as such but that there are not enough women in senior management positions in general, and more problematically, that there are not enough women going forward for senior management roles. Reports from Credit Suisse, McKinsey and Catalyst all show that women don’t feel as confident in their professional abilities as men and as such don’t put themselves forward for promotion as often as men. This is part of a socialization process that starts long before the workplace: at home, in schools and in daily life. I agree with the panelists to a certain extent about the tokenism of gender quotas: of course no one wants to feel like they’ve been selected for a position on the basis of their gender – or race or religion, etc – rather than their ability. However, the demonstration effect that quotas provide is significant. Moreover, there is the difficult in breaking the cycle of male dominated boardrooms as the appointment processes largely occur through old boys networks. I am thus interested in the more holistic role the business community can play in tandem with government in altering outmoded familial and labour market relations regarding women and the workforce.
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