Gender Composition of Boards Important for Competitiveness

by Beth Brooke
Global Vice Chair of Public Policy, Ernst & Young

Corporate America often says we are facing a pipeline problem when challenged with the troubling reality that women occupy only 16 percent of Fortune 500 board seats. Yet to bump the percentage of U.S. board seats filled by women up by one percentage point, it would only take about 50 women joining the boards of these companies. There is no doubt there are far more than 50 qualified women interested in U.S. board seats right now.

Despite a professed desire by many U.S. companies for greater diversity and female representation, there has been virtually no improvement in recent years in the senior ranks. In the meantime, on goes the brain drain — as senior women are now being competitively recruited to serve on the boards of non-U.S.-based companies.

The situation is urgent. U.S.-headquartered companies are failing to meet the career needs of half their available highly skilled labor and falling behind international competitors that are taking aggressive action to increase the number of women on their boards. That is the central finding of a new report, Fulfilling the Promise: How More Women on Corporate Boards Would Make America and American Companies More Competitive, from the business-led Committee for Economic Development (CED).

Corporate leaders must actively commit to make advancement decisions that take advantage of the power of diverse views from leaders who don’t think, act or look like themselves. That will require diligently breaking old habits of selection that still favor those similar to existing leadership at the top. Nominating committees need to re-examine the narrow selection criteria that often exclude those who have not served in a CEO role. For example, it has been reported that of the 78 women currently serving as CFOs of Fortune 1000 companies, 53 are not currently serving on any outside board. This is a uniquely qualified group. The CEOs of these companies can take a critical step forward by advocating for their female CFOs to serve on outside boards.

Fulfilling the Promise highlights the key realities facing the market for women in top corporate roles and makes two critical recommendations:

Key Realities:

• Gender Composition of Corporate Boards is Important for Global Competiveness. Women constitute a substantial portion of highly talented labor — women have caught up to and surpassed men in attaining bachelor’s and master’s degrees, yet top corporate leadership does not reflect that fact.

• Existing Efforts Do Not Yield Enough Progress. Current efforts are not working — the percentage of women on all U.S. corporate boards has been stuck well below 13 percent for a decade.

• Supply Challenges. Board nominating committees often say that the small number of women on boards is due to the small number of perceived qualified candidates. The CED report casts doubt on that viewpoint. Companies must examine how to get more qualified candidates in the pipeline.

• Nominating Committees Do Not Do Enough To Demand Women Candidates. While researchers have not found overt bias in the board nomination process, the system currently appears tilted toward maintaining boards in the male-dominated form familiar to the business world.

• Supply and Demand Problems Will Not Fix Themselves: Active Solutions Are Needed. An aggressive effort is needed by all U.S. companies to improve female representation on corporate boards. The status quo is not acceptable.

Recommendations:

1. Meet the Competitive Challenge. As their colleagues in Australia, the U.K. and elsewhere have done, CED members challenge leaders of U.S. companies to examine their practices against the best in class; they should ask what they are doing to advance women within their own companies and onto the boards of others, and they should be transparent in setting targets and measuring results.

2. Advocate for Talented Women. Companies must employ all possible solutions to raise the number of women on corporate boards. That includes: setting goals; targeting talented women for promotion; publicly reporting targets and recruitment efforts voluntarily; providing active sponsorship programs for women; and employing executive search firms to increase the pool of women corporate board candidates.

Conclusion

America’s business leaders should understand that they need to use all available talent to succeed in today’s competitive global markets, and such talent increasingly will come from women. America’s adaptability and cultural diversity have historically been sources of significant strength in its economic development. Compared to many other countries, particularly in Europe and Asia, the United States has gained from its ability to integrate culturally diverse groups into positions where they could contribute significantly to economic growth and development. Women, too, have been integrated into the workforce in unprecedented numbers. Despite these gains, the potential is much greater. The United States is not yet a global leader in creating opportunities for women — it has ample room for improvement.

Beth Brooke is Global Vice Chair of Public Policy at Ernst & Young, where she is responsible for shaping the firm’s positions on public policy. She engages with regulators, policy makers, business leaders, investors and other key stakeholders around the world to address the critical issues facing the profession and global capital markets. She is also Ernst & Young’s global sponsor of Diversity and Inclusiveness efforts and a prominent advocate in the world for the benefits of inclusive leadership and inclusive growth.