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Gender Quotas on American Boards? Outrageous! Or Good Business?

Amanda K. Brady, Associate Director

Several months ago, I watched a PBS To the Contrary episode discussing Norway’s 2004 law requiring that 40 percent of public company board seats be filled with women. A quota. I’m not a fan of quotas except when evidence reflects there is just no other way to right some injustice. Apparently Norway’s corporate leaders were none too happy about this government intrusion. Their obligations are not to the government or even to society. Instead, maximizing shareholder value should dictate and direct business decisions. Just ask any business school grad. Of course, then the show reported the number of women on corporate boards in the US.

It wasn’t very encouraging. In fact it was disappointing and a bit puzzling. I can almost hear Seth Meyers and Amy Poehler on a Saturday Night Live bit of Really!?! As it turns out, as progressive as we like to believe we are as a society, only 15.7 percent of US Fortune 500 board members are women and only 14.4 percent of executive officer positions are held by women. Really? That 51.5 percent of women hold management, professional and related positions in the US labor force makes the board and executive numbers even more puzzling. But really. Quotas? While at a gut level it only seems right and fair that women should hold at least an equivalent portion of leadership positions as their percentage of the population, my version of “fairness” in business also requires that the shareholders not be neglected. It is their monetary investment that funds the organization, after all.

As I chewed on this report, it began to eat at me. Why, in a country built on individual contribution and hard work, where opportunities abound, is this true? My personal path is fairly well set and I’ve forged opportunities for myself in a profession that rewards performance regardless of gender. But what, pray tell, am I supposed to tell the young woman MBA student I am mentoring about her prospects for the future? Go for it honey. Knock yourself out. But just know that the statistics are against you making it to the top. I’d really rather not have to say that.

Consequently, I was compelled to find out whether there was any good business reason to support the argument for more women on boards. Turns out the answer is a very strong YES. A 2007 McKinsey study reported that companies with three or more women in top management roles had better operating results, share price and return on equity than those with male dominated boards. According to the report, “A number of reasons suggest that gender diversity is a real issue for business, and one that deserves to be tackled urgently. Corporate competitiveness is at stake.”

And Ernst & Young has been watching this as well. An E&Y January 2010 whitepaper also cites research showing that companies with diverse boards outperform others on key financial metrics while also helping to avoid groupthink, foster more creative problem solving, and enhance strategic perspective. In addition, E&Y reports that diverse boards offer an organization a better understanding of their customers, help companies win the war for top talent and help meet growing investor demands, especially demands of institutional investors…think CalPERS. Unaware of my investigation, a client recently shared a March 2011 KPMG and InterOrganization Network report entitled “How Change Happens” that presents an institutional investor activist approach to changing board room composition as well as techniques for individuals to be heard.

While I realize there are no easy answers, it’s hard to conceive of quotas of this sort in America. Should government legislate practices to make businesses more profitable and better positioned to maximize shareholder value? Really? And given Congress’s recent log jam, almost amusing. Surely American business leaders will respond to the research on their own. My female MBA protégé is waiting.

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