Where are the women directors?

By April 20, 2009News

In Norway, 40% of the directors on public company boards are women. This is the case because it is now required under Norweigan law. In 2002 when the target was initially set, women comprised just 7% of the director population.

What a difference a law makes.

There are a number of reasons given for increasing the number of women that serve on the boards of public companies. At the most fundamental level, the overwhelmingly male profile of the typical Canadian boardroom is challenged on the basis of fairness. Women make up over half of the Canadian population, yet a 2009 survey of the boards of 136 large Canadian public companies found that just 11.3% of the directors are women.

Behavioural experts tell us that the more diverse the membership of a group with oversight responsibilities, the more effectively that group functions. Key to this observation is the finding that the more homogeneous a group is, the less eager each member is to be seen out of step with the others. Each individual will ask fewer questions, for example, in order not to appear to have ‘missed something’ that their peers have (apparently) understood. This behaviour is broadly referred to as ‘groupthink’ and in the corporate context has been widely studied, most notably in relation toEnron’s collapse in 2001.

Some researchers take observations about group dynamics out into the marketplace and look for evidence that companies with more diversity on the board (and indeed at all levels of activity) exhibit superior financial performance. In the U.S. and Europe, they’ve found it.

So there are a number of solid hooks on which to hang your hat if you want to support gender diversity in the public company boardroom. In Canada, however, the shareholders of our companies are not giving significant support to proposals that seek gender parity on boards. In 2008 and 2009, shareholder advocate MEDAC proposed that several boards make it their policy to fill vacancies on the board with women until a 50-50 gender balance is achieved.

Voting on the proposal this year at Canada’s five largest banks shows very modest support for a gender parity policy. At two banks where women made up 20% or less of all nominees, the shareholder vote for the proposal was 6% and 6.3%. At the three banks where women made up a higher percentage of board seats (24% to 29%), shareholder support for the proposed policy fell under six percent.

Supporters of increasing the number of women on corporate boards believe that qualified candidates exist, but are not being called upon. The pushback from the corporate side is that talent and experience are the relevant criteria, and when these criteria are applied, the result is a group consisting mostly of men. It isn’t that they don’t want to invite more women to the table, they say, but that when they go looking for directors, the best people happen to be women far less than half of the time.

The ‘very best people’ refrain is one heard frequently in Canada. Another common example regards pay: Executive compensation must be stratospheric because there is no other way to attract stellar talent. Similarly, boards are male dominated because men are almost always the best people for the job. Such assertions are made to further the idea that at the top, companies are populated by individuals of fantastic abilities. They must not be restricted or given direction as they pick their peers and successors.

Circling back to the behaviourists, we find that another danger of highly homogeneous groups is their tendency to believe that the only people fit to join the group are those who are just like its existing members.  This tendency is apparently common, but it isn’t conscious, and it is therefore devilishly difficult to change without forcing the issue. Such was the conclusion in Norway.