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June 01, 2006

Women Do Make a Difference

by Directorship Editors
AMONG THE STICKIEST ISSUES facing boards these days is how to lure more women into directorship positions. The challenge has nothing to do with political correctness. Under pressure from shareholders and regulators to improve performance, nominating committees are paying more attention to board composition. Broadly speaking, their goal is to achieve greater independence and ensure that directors have what it takes to exert due diligence. Most board members, consultants, and recruiters agree that achieving a mix of business experiences and individual perspectives—including gender diversity—is key to meeting that goal.

Yet women remain a rare commodity in many boardrooms. According to the 2005 Census of Women Board Directors, released on March 29 by the research and advisory organization Catalyst, women hold 14.7 percent of all board seats in the Fortune 500. While that ratio has risen since 1995, when the first such census was taken and women filled 9.6 percent of board seats, it shows little change from 2003—even though many largecap companies have made greater diversity among their officers and directors a business priority. Catalyst's vice-president for executive leadership initiatives, Deborah M. Soon, thinks the slow pace of change has to do less with any prejudices than with the effort required to change board composition. "We're all averse to doing more work," she says. Governance professionals who advise boards say the scarcity of C-level executive women is their biggest recruitment obstacle. While women hold more than half of managerial positions in U.S. companies, they remain underrepresented in the top ranks; in the average director search, fewer than a third of potential candidates turned up are female. At the same time, many high-profile female CEOs already sit on upward of three boards -- some serve on more than five—and are in danger of stretching themselves too thin.

They're also very expensive. That combination of low availability and high cost for women corporate officers can be frustrating for growing companies. Boston-based business innovation consultant Sapient, for example, wants a second financial expert on its board and would like to recruit a woman. "What's been difficult in my search effort is that women who fit the very restricted qualifications of audit committee expert can write their ticket to any board, but they're at a premium, and understandably very selective," says Jane Owens, Sapient's general counsel and corporate secretary.

With $300 million in revenues, Sapient wants to become a $1 billion company—so bringing experience at the next growth level onto the board has top priority. "There's a view, which I support, that someone who is female but lower [than C-level] in the ranks isn't facing issues in a way that would necessarily make a contribution to the board and the CEO it's trying to advise," says Owens. "Would I accept a middle management level in a male candidate? No. It's not the full complement of experience that I think is needed."

Hiring competent directors of either gender takes harder work than it did just a few years ago. With Sarbox imposing more accountability on boards, and stock exchange listing rules requiring more independence, nominating committees must cast a wider net. "The process is much more thoughtful than it was 10 years ago, when it was more CEOdriven," says Beverly Behan, a partner in the corporate governance practice at Mercer Delta Consulting and the author of Building Better Boards. Behan doesn't think being a good director has anything to do with gender at all. But, she says, "there's a huge disconnect between the people available to serve and the recruitment process," she says. "Going back over the same old list doesn't work anymore."

So, finding the best women directors requires breaking out of the informal networks that have traditionally yielded board candidates and tapping into channels that may have been neglected in the past. A number of regional and national organizations work to help nominating committees do just that (see box p. 18). Catalyst created its corporate board placement service in 1977 to help companies identify qualified female directors and maintains a current database of 2,500-plus women across the country. More recently, groups that serve specific geographic areas have joined forces to put potential board members in touch with those who need them. The InterOrganization Network (ION), for example, includes seven organizations: Board Directors Network (Atlanta), The Boston Club, The Chicago Network, The Forum of Executive Women (Philadelphia), Inforum (Detroit), Milwaukee Women Inc., and Women Executive Leadership (Fort Lauderdale). Member organizations pool their regional data on senior professional women, effectively creating a transcontinental network. Other important sources for nominating committees seeking women reside at colleges and universities, such as the Radcliffe Institute for Advanced Studies at Harvard and the Women's Leadership Institute at Bentley College. The powerful, Chicago-based Committee of 200 is also dedicated to women's leadership; its all female members, who together manage some $100 billion worth of revenues, promote advancement through mentoring and networking.

Interestingly, several well-known women directors declined to comment for this story. Avon Products chairman and CEO Andrea Jung, who sits on the boards of General Electric, Catalyst, and New York-Presbyterian Hospital, is said to avoid discussing gender issues (although Avon's tagline is "the company for women," and five of its 11 directors are female). Shelly Lazarus, chairman and CEO of Ogilvy & Mather, is a director at Ann Taylor Stores, New York-Presbyterian, and the World Wildlife Fund, plus an overseer at the Columbia Business School; she also preferred not to be interviewed. So did Ursula Burns, a senior vice-president at Xerox Corp. who serves on the boards of American Express and Boston Scientific.

The female directors who agreed to speak on the record, however, were avowed proponents of the benefits of diversity in governance. "When you look at the key issues facing boards today—compensation, majority voting, the hot topics—I think women are less likely to look at the stakeholders as antagonists," says Betsy Bernard, a private investor and former president of AT&T who serves on the boards of Principal Financial Group, BearingPoint, United Technologies, and URS Corp. Bernard reports a palpable difference between board meetings at Principal, where five of 13 directors are women, and UTC and URS, where she is either the sole woman or one of two. "Principal is a role model of everything that's great about governance," she declares. "It's easier when you have a balanced board. Don't get me wrong, I love all my male colleagues. But there's a groupthink that happens, when you don't have balance, that can overshadow good debate and discussion."

Some seasoned directors say they have watched that debate shift from diversity to competence as more women with very senior experience joined the process. For instance, Sharon L. Allen, chairman of the U.S. board of global professional services firm Deloitte & Touche, was first appointed 10 years ago as the only woman director. Back then, she recalls, she was frequently consulted for "the woman's perspective." Over time, her contributions were increasingly based on her years as a managing partner with the firm's advisory practice. Today, seven of Deloitte USA's 22 directors are female, and "we don't even think of our women as contributing 'woman' or 'diversity' experience," Allen says. She believes that what started out as a commitment to diversity for its own sake has evolved into a dynamic in which board members are elected and valued for their competence alone. "As you look across Corporate America and see how standards are rising for good governance, [diversity] can only help by giving broader access to talent and leadership."

Mercer Delta's Behan believes that greater gender diversity could result naturally as boards become more conscientious about fulfilling other criteria, from operational experience to cultural expertise. By way of example, she cites an airline whose board decided it wanted to include a resident from each of its major hubs. She sees more midcap companies looking at business unit leaders from larger corporations, rather than focusing on their peers' CEOs. And she says the appetite for independent chief financial officers to head audit committees may lead boards to knock on more women's doors. "One of the most hunted animals in Corporate America today is the CFO," she declares. A board stalking these creatures "may wind up with more diversity than if [it's] just looking at CEOs."

Simple demographics are forcing nominating committees to look beyond the traditional candidate pool. Active CEOs can no longer sit on six or eight boards; some large companies prohibit their chief executives from serving on any boards at all, and others limit outside directorships to one position. At the same time, says Julie Daum, who runs the North American board of directors practice at global executive search firm Spencer Stuart, nominating committees are hungry for independent candidates. Because of that imbalance between supply and demand, "there's greater receptivity to differences in the boardroom today," says Daum. "You used to invite people someone knew very well, and that usually eliminated women, minorities, and people a little lower in the organization. Now boards are looking for the best person with the right skills."

One solution, some believe, is to look for talent in the pipeline and tap it before it emerges. Former U.S. Commerce Secretary Barbara Franklin, who now runs her own investment and management consulting firm in Washington and serves as a director at five publicly traded companies, including Dow Chemical, Aetna, MedImmune, and GenVec, says one board on which she sits is scouting to fill a seat that will become vacant in 2008. A tactic she recommends is "trying to spot the stars just before they arrive in total visibility. You want to find them while they're on track to be CEO, and get them before they get there. Then you hope they stick with you once they get the job." The trick, Franklin says, is planning ahead. "You have to be thinking years out."

Of the 277 women Spencer Stuart has placed on boards since 2000, about 70 percent were C-level executives—but by no means all CEOs. Of the remainder, some 15 percent were senior vice-presidents or executive vice-presidents; 8 percent were managing directors or partners; and around 6 percent came from academic or nonprofit institutions. "We've had no trouble building a database of strong businesswomen," says Daum.

"Our challenge," says Toni Wolfman, the Bentley leadership program's executive in residence and former chair of the Boston Club's Corporate Board Resource Program, "is to keep reaching out to those who influence the nominating process—to make them aware that there's a universe of talent out there and they're at a disadvantage if they ignore it." She says CEOs and nominating committee chairmen in search of new directors often express surprise when they discover the extent of ION's database. Many stop insisting on corporate officer status, she adds, "when you show them a candidate with significant P&L responsibility, in charge of a line of business with several thousand people reporting to her. The title isn't everything."

Wolfman believes that as more executives retire earlier, the ranks of soon-to-retire seniorlevel women may also be rewarding hunting grounds for boards. After a long career of 80- hour weeks and ceaseless travel, she says, many highly qualified women in their 50s feel ready to leave their positions but still want to make a professional contribution—and have years left in which to do so. "I know many women who fall in that category," she says, "and they have the necessary experience to serve as directors."

Entrepreneurs are another source of expertise. Madeleine Ludlow, former CFO of Cincinnati-based utility Cinergy Corp., held senior posts at several banks and energy companies before launching Ludlow Ward Capital Advisors, an investment firm, last April. She served on the board of Oglebay Norton from 2000 to 2004 and was recently hired as a director at Allete, a Minnesota company with operations in electric power and real estate. As one of two women on the ninemember board, Ludlow says she was chosen for her background in finance and utilities, while her female colleague brings knowledge of the Florida real estate market to the table.

But whether women make a difference to governance and results remains a matter of debate. A high-profile 2004 study of 353 Fortune 500 companies by Catalyst "The Bottom Line: Connecting Corporate Performance and Gender Diversity," showed that those with the most female corporate officers posted 35.1 percent higher return on equity and 34 percent higher total return to shareholders than those with the fewest between 1996 and 2000. Also in 2004, Citizens Fund, a money management company that specializes in socially responsible investing, divided its universe of 300 stocks into quartiles based on women's representation on the board and in officer positions; it found that stocks in the top quartile (most women) delivered a 3 percent higher annual return over one- and three-year periods than those in the bottom quartile (fewest).

Such studies imply nothing about causality, and they elicit skepticism from many governance experts and board members. "It's difficult to correlate performance with women's presence," says Marjan Bolmeijer, an executive coach and founder of global consulting firm Change Leadership. "This is just one tiny little influence, compared with market forces. It's hard to take seriously."

Instead, the consensus seems to correlate gender diversity with proactive thinking on a company's part. "It's difficult to determine cause and effect," says Deloitte USA chairman Allen, "but companies that are more progressive may also be higher-performing. In their decision-making process, they opt for more women. I think the higher profitability reflects the contribution women are making based on their experience, and how it helps a company be more inclusive in its thinking." She still likes to cite the example of Nike, which hadn't considered making women's athletic shoes until board member Jill Conway suggested it. "It might have happened eventually," says Allen, "but it happened sooner. And it turned out really profitable."

General Mills CEO and chairman Steve Sanger, whose 12-member board is now one-third female, may be among America's biggest champions of professional women. In the past two years, the overall proportion of female directors and managers at Big G rose from 21 percent to 30 percent, and Sanger not only presides over an aggressive internal mentoring program but is also active in external women's networks. He serves on the Catalyst board and is a director at Wells Fargo, five of whose 16 directors are women. And Sanger puts his money where his mouth is: Last June, the General Mills board voted to give performance in diversity and development a 10 percent weighting in each business unit's annual review, to be reflected in compensation.

Clearly, like Deloitte & Touche, General Mills and Wells Fargo long ago moved beyond diversity for its own sake and decided that their companies and boards can serve stakeholders best by seeking out intelligence in every possible demographic. "The worst thing in the world, frankly, is tokenism," says Mercer Delta's Behan. Today, she says, no accomplished female executive or marquee name CEO or African-American entrepreneur wants to be corporate arm candy. When more businesswomen populate board ranks, it will be because nominating committees are working harder to find good directors. Right-brain thinking will be the icing on the cake.
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Comments:

 Realist said:
"... AMONG THE STICKIEST ISSUES facing boards these days is how to lure more women into directorship positions. The challenge has nothing to do with political correctness...." You must be kidding - I wonder, if the author would put his money where his mouth is. The only reasons a sane person would make women directors are political issues.
July 08, 2008 10:46 AM