Editor’s Note: This new department, Keeping Count, will reveal how NACD “keeps count” of important governance trends—comparing our numbers to others in the media. We won’t affirm or refute the data of others; instead, these articles will dig deeper into the story—using NACD’s resources to go beyond what is found in the news.
More than ever, board composition is in the spotlight. The likely advent of proxy access is expected to increase the presence and influence of shareholders in the boardroom. Many are asking, “Where are the women?”
In Europe, several countries are considering, or have put into practice, quotas mandating a specified percentage of female representation in the boardroom. Norway, a pioneer in these efforts, now has a 40-percent requirement, due to a 2003 mandate that was fully phased in two years ago. Since then, France, Iceland, Spain and the Netherlands have followed suit, although these quotas are not yet fully enforced. Quotas are also being considered in Germany.
The European Commission is threatening to enact a sweeping mandate if improvements in female representation are not seen in 2011, and a report recently issued by the British government suggests that women should make up at least 25 percent of boards in the United Kingdom by 2015.
Right now, most American boards would not meet the current quotas used across the Atlantic. How prevalent are female directors on U.S. boards? There are several ways to assess this: the percentage of boards having at least one woman, the percentage of total board seats held by women, or the average number of female directors compared to the average board size. The last approach may be the most telling.
According to the 2010 NACD Public Company Governance Survey, the average board has 8.3 members. To shed light on the exact number of female directors, in 2010 the survey was altered to ask how many female directors sit on each board. While almost a third of respondents (31%) revealed their board is composed of all male directors, most commonly (36%) directors indicated their board has one female director. This number declines sharply at two female directors (22%), and again at three or more (10%).
According to our survey, boards in the utilities and consumer staples sectors are more likely to have three or more female directors. In other sectors, however, it appears many American boards would need to add several female directors if European-style quotas were introduced.
Bolstering the percentage of women on individual boards does not necessarily equate to greater representation as a whole. While women are represented on 40 percent of Norwegian boards, for example, they hold just 19 percent of total board seats, according to data from BoardEx. Globally, women hold 10 percent of possible directorships. American women are slightly ahead of the global average, holding 13 percent of board seats.
Women have a slightly higher profile in Fortune 500 boardrooms, according to Catalyst, a leader in providing historical data in the area of women in business. The percentage of Fortune 500 board seats held by women has increased steadily from 9.6 percent in 1995 to 15.2 percent in 2009.
With the Securities and Exchange Commission’s enhanced proxy disclosure rules, companies must now explain how their board considers diversity in its composition.
While the required disclosures are left ambiguous to allow boards to provide their own discussion of how they achieve diversity of experience and thought, boards often look to recruit more females as well as ethnically diverse directors.
In 2010, nearly three-quarters of directors surveyed by NACD agreed that gender and ethnic diversity are important in board recruitment—the highest percentage to agree since NACD began asking the question more than a decade ago.
And yet, despite this stated desire for greater diversity, current data shows many American boards would have difficulty meeting gender quotas, should they become mandated.
Kate Iannelli is a research analyst with NACD.