Gender representation on corporate boards of directors

Gender representation on corporate boards of directors refers to the proportion of men and women who occupy board member positions. Globally, men occupy more board seats than woman. In 2015, women held 17.9% of the board seats on Fortune 1000 companies.[1]

This disproportionality is being addressed by both governments and corporations around the world through various measures including legislation mandating quotas for women on corporate boards and corporate governance guidelines.

Equality of Treatment

The desire of governments and corporations to reduce the disproportionality on corporate boards is rooted in the principle of equality of treatment. Equality of treatment requires that all people be treated equally, regardless of societal prejudices. Equality of treatment may mean either equality of opportunity or equality of outcome, with the former providing everyone with the opportunity to achieve without hindrance, and the latter requiring every individual to possess an equal portion of goods.[2]

The Convention on the Elimination of all Forms of Discrimination Against Women requires states that have ratified the Convention to guarantee the exercise of human rights and fundamental freedoms to women on a basis of equality with men in all fields.[3] Further, many countries have opted to pursue this principle through their constitution or through various forms of legislation. For example, the Canadian Charter of Rights and Freedoms guarantees equality rights, which includes gender equality,[4] and the Equality Act 2010 in the United Kingdom.

History

Some sources have claimed that one of the first female directors to serve on a major board was Lettie Pate Whitehead, who served on board of the Coca-Cola Company from 1934.[5] A survey of Fortune 250 companies in 2012, however, found the first female director of the companies on that list to be Clara Aboott who was a director of Abbott Laboratories from 1900.[6] Katharine Graham was the first female Fortune 500 CEO in 1972. Ursula Burns was the first African American woman CEO of a Fortune 500 company. The average Fortune 205 company elected its first female director in 1985.[6]

Effects of gender diversity on corporate boards

Numerous studies have been undertaken on the effects of gender diversity on company boards on firm value with mixed results. Some argue that the cognitive differences between the genders will influence firm performance and the different values held by different genders would influence the decision marking processes of boards.[7] Some studies have found a positive correlation between having women on boards and financial value, with a particularly strong positive correlation in countries with strong shareholders rights.[8] Further, a survey showed that companies with greater female board participation were less likely to be involved with governance scandals.[9]

Despite the volume of literature on the topic and the general consensus on the benefits of gender diversity on corporate boards, it has been difficult to determine the particular manner in which female directors contribute to corporations on the basis of their gender.[10] Further, in the context of emerging economies, others have found gender diversity to have a negative effect on firm value in companies with particular ownership types and board structures.[11]

Current Landscape

The two metrics that are frequently used to examine gender representation of women on corporate boards are the percentage of companies that have at least one woman on their board, and the percentage of women holding corporate board seats.

Asia Pacific

In Australia, women held 19.2% of board seats of companies on the S&P/ASX 200 index.[12] In Hong Kong and India, women held 10.2% and 9.5% of board seats.[12] Women in Japan held 3.1% of board seats on companies in the TOPIX Core 30 Index.[12]

Europe

The proportion of board seats held by women in Europe varies significantly. In the Scandinavian countries, Norway led the way with 35.5% of board seats held by women, 29.9% by women in Finland, 28.8% in Sweden, 21.9% in Denmark.[12] In France and Germany, women held 29.7% and 18.5% of board seats respectively.

In the United Kingdon, among the companies in the FTSE 100 index, women held 22.8% of board seats.[12] At the other end of the scale, women held only 10.3% of board seats in Ireland and 7.9% in Portugal.[12]

North America

In Canada, women held 20.8% of board seats on companies in the S&P/TSC 60 index.[12] In the United States of America, women held 19.2% of board seats on companies in the S&P 500 index.[12]

Encouraging gender diversity on corporate boards

Regulatory Responses

One approach taken by governments has been to enact legislation requiring a set quota for female representation on corporate boards. This quota system typifies equality of outcome, an approach to equality that is concerned with the result rather than the means of achieving such a result. Belgium, France, Germany, Iceland, India, Israel, Italy, Norway and Spain currently have legislated quotas for women on corporate boards of publicly listed companies.[13] It has been found that countries that adopt board gender quotas tend to have several pre-conditions: female labor market and gendered welfare state provisions, left-leaning political government coalitions, and path dependent policy initiatives for gender equality, both in the public realm as well as in the corporate domain.[14]

Europe

In January 2006, the Norwegian government introduced quota legislation that required both public and state owned companies to have 40% female board representation by January 2008. Failure to comply resulted in fines or company closures. Full compliance was achieved by 2009. The percentage of female board members has since remained between 36% and 40%.[15]

In February 2011, a bill was passed requiring 40% female directorship by 2016. This quota is to be implemented on two schedules, one for private companies and one for public companies. Public companies will require 20% female board representation within three years, and 40% within six years. Private companies will have nine years to reach the 40% quota. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members.[16]

Belgium passed a law on requiring 33% female directorship by 2018 introduced in the new article 518bis of the Company Code. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members.

North America

Quebec’s Bill 53, passed in 2006, is the only provincial legislation currently in effect that deals with gender representation on corporate boards. This bill requires an equal number of men and woman on the boards of Crown corporations.[17]

At the Federal level, two bills are currently being tabled: (1) Bill S-217,[18] which will impose a 40% quota for female board members of public companies and other regulated entities such as banks and insurance companies; and (2) Bill-C473,[19] which will balance the gender proportionality of directors serving on boards of state corporations by establishing minimum participant requirements by gender.

Weaknesses of regulatory responses

Enacting quotas through legislation is one way to respond to the challenges presented to women seeking board positions. However, some argue that quotas inadequately address the larger structural issue known as the glass ceiling. Board members are typically appointed in one of two ways: (1) internally, through in-firm appointments of high level executives such as CEOs; and (2) externally, through appointments made from outside of the firm. Quota systems geared towards a more equal proportionality on corporate boards function by targeting the gender representation of the board, rather than targeting the pool from which candidates are appointed. So although a board may be more proportional, the pool from which appointments are being made remain unchanged and largely disproportional.[20]

Norway’s quota system has provided for a significant increase in the number of women on corporate boards. This increase has yet to alter the way that women progress through organizations. In Norway, the percentage of women on corporate boards was approximately 40%. Despite this proportion, women account for only 2% of CEOs and 10% of executive committee members, which make up the candidate pool for internal appointments.[21]

The disparity between internal and external appointments to corporate boards also arises in jurisdictions that have not instituted a quota system. For example, in 2013, 48% of the female executive directors in the United Kingdom were internally promoted, compared to 62% for males.[22]

Corporate governance codes

Another approach to addressing the disproportionality on corporate boards has been the adoption of the “comply or explain” governance system. This system requires companies to address the issue of proportionate gender representation with regards to board and executive appointments, and if not, to explain why. The “comply or explain” system exemplifies equality of opportunity, an approach to equality whereby all people should be treated similarly, regardless of prejudices, preferences, or historical disadvantages, unless particular distinctions can be justified.[23] The “comply or explain” system allows market forces to determine whether corporate policies are appropriate by publicizing the issue of gender representation for shareholders and customers to see. Failure to comply with this system results in shareholder discontent and bad publicity for the company. This directly influences the company’s image and profitability.

Fifteen countries have included requirements to report gender diversity board composition under their corporate governance codes.[24]

United Kingdom

In 2012, the United Kingdom implemented a mandatory “comply or explain” system to address the disproportionally on corporate boards through the UK Corporate Governance Code. Unlike a quota that sets a specific proportion and is often criticised for failing to account for merit, the UK Corporate Governance Code allows corporate boards to implement their own gender diversity policies and explicitly requires merit as a consideration. The UK Corporate Governance Code requires companies to annually report on their boardroom gender diversity policy as well as their executive management appointment practices, and if not, to explain why.[25]

Sweden

Despite their “comply or explain” system, women in Sweden rarely hold executive management positions in large companies. In 2004, the Swedish Annual Accounts Act was amended in order to force companies to disclose information on gender proportionality amongst managerial levels in its annual reports. The government justified this amendment as they suggested it would lead to more women in executive positions and a larger pool of candidates for internal appointments to corporate boards.[26]

Finland

In 2008, Finland implemented a “comply or explain” system which required both genders to be represented on corporate boards, and if not, to explain why. A particularity of Finland’s approach is the requirement of at least one man and one woman on every board. This hybrid approach utilizes a “comply or explain” system and a quota to further its goal of gender proportionality on corporate boards. Women account for approximately 24% of corporate board members, up from 12% before the implementation of this hybrid approach.[27]

In 2012, the Finland Chamber of Commerce implemented a mentoring program for women in mid to high-level managerial positions as a supplement to their current approach. This program included mentoring, seminars and networking opportunities; providing these women with the tools to become candidates for executive management positions, and to qualify for internal board appointment.[28]

References

  1. ↑ "Gender Diversity Index" (PDF). 2020 Women on Boards. Retrieved 5 May 2016.
  2. ↑ McCoy Family Center for Ethics in Society. "Equality of Outcome". Equality of Opportunity and Education. Retrieved 5 May 2016.
  3. ↑ "Convention on the Elimination of All Forms of Discrimination Against Women". www.un.org. Retrieved 5 May 2016.
  4. ↑ Section 15, Canadian Charter of Rights and Freedoms.
  5. ↑ "Lettie Pate Whitehead". Lettie Pate Whitehead Foundation. Retrieved 5 May 2016.
  6. 1 2 Larcker, David; Tayan, Brian (September 2013). "Pioneering Women on Boards: Pathways of the First Female Directors". Stanford Closer Look Series: 2.
  7. ↑ Post, Corinne; Byron, Kris (October 2015). "Women on Boards and Firm Financial Performance: A Meta-Analysis". Academy of Management Journal 58 (5): 1548.
  8. ↑ Post, Corinne; Byron, Kris (October 2015). "Women on Boards and Firm Financial Performance: A Meta-Analysis". Academy of Management Journal 58 (5): 1546.
  9. ↑ Grene, Sophia; Newlands, Chris (8 March 2015). "Boards without women breed scandals". Financial Times. Retrieved 3 May 2016.
  10. ↑ Broome, Lisa; Conley, John; Krawiec, Kimberley (March 2011). "Board Diversity and Corporate Performance: Filing in the Gaps: Dangerous Categories: Narratives of Corporate Board Diversity". North Carolina Board Review 89: 760.
  11. ↑ Abdullah, Shansul; Ismail, Ku Nor Izah; Nachum, Lilac (March 2016). "Does Having Women on Board Create Value? The Impact of Societal Perceptions and Corporate Governance in Emerging Markets". Strategic Management Journal 37 (3): 466–476.
  12. 1 2 3 4 5 6 7 8 "2014 Catalyst Census: Women Board Directors". Catalyst. 5 December 2014. Retrieved 5 May 2016.
  13. ↑ "Women, Business and the Law 2016: Getting to Equal" (PDF). World Bank.
  14. ↑ Terjesen, S., Aguilera, R., & Lorenz, R. 2015. “Legislating a Woman’s Seat on the Board: Institutional Factors Driving Gender Quotas for Boards of Directors.” Journal of Business Ethics. 128(2): 233-251. Also available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2327576
  15. ↑ UK Department for Business, Innovation & Skills, Women on Boards (UK: Department for Business, 2011) at 22, online: GOV.UK <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31480/11-745-women-on-boards.pdf>
  16. ↑ UK Department for Business, Innovation & Skills, Women on Boards (UK: Department for Business, 2011) at 22, online: GOV.UK <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31480/11-745-women-on-boards.pdf>
  17. ↑ Bill 53, An Act respecting the governance of state-owned enterprises and amending various legislative provisions, 2nd Sess, 37th Leg, Quebec, 2006, cl 43(2) (assented to 14 December 2006), SQ 2006, c 59.
  18. ↑ Bill S-203, An Act to modernize the composition of the boards of directors of certain corporations, financial institutions and parent Crown corporations, and in particular to ensure the balanced representation of women and men on those boards, 1st Sess, 41st Parl, 2011, (second reading 16 December 2011).
  19. ↑ Bill C-473, An Act to amend the Financial Administration Act (balanced representation), 2nd Sess, 41st Parl, 2013, (first reading 25 February 2013).
  20. ↑ Zena Burgess & Phyllis Tharenou, “Women Board Directors: Characteristics of the Few” (2002) 37 Journal of Business Ethics 39-49, online: University of Toronto: Centre for the Study of Education and Work <http://wall.oise.utoronto.ca/inequity/3burgess.pdf>
  21. ↑ UK Department for Business, Innovation & Skills, Women on Boards (UK: Department for Business, 2011) at 26, online: GOV.UK <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31480/11-745-women-on-boards.pdf>
  22. ↑ Cranfield University School of Management, The Female FTSE Board Report 2013, (Bedford (England): Cranfield University, 2013) at 7, online: Cranfield University <http://www.som.cranfield.ac.uk/som/dinamic-content/media/Research/Research%20Centres/CICWL/FTSEReport2013.pdf>.
  23. ↑ (Paul de Vries (2011-09-12), equal opportunity, Blackwell Reference, retrieved 2011-09-12)
  24. ↑ Terjesen, Siri; Aguilera, Ruth; Lorenz, Ruth (May 2015). "Legislating a Woman's Seat on the Board: Institutional Factors Driving Gender Quotas for Boards of Directors". Journal of Business Ethics 128 (2): 233–251.
  25. ↑ Financial Reporting Council, The UK Corporate Governance Code, 2011, at 12, online: Financial Reporting Council <https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.aspx>
  26. ↑ Finland Chamber of Commerce, Consultation on Gender Imbalance in Corporate Boards in the EU, 2012, at 4, online: Financial Chamber of Commerce < http://ec.europa.eu/justice/newsroom/gender-equality/opinion/files/120528/all/143_en.pdf>
  27. ↑ TD Economics, Special Report: Get on Board Corporate Canada (7 March 2013) at 1, online: TD <http://www.td.com/document/PDF/economics/special/GetOnBoardCorporateCanada.pdf>
  28. ↑ Finland Chamber of Commerce, Consultation on Gender Imbalance in Corporate Boards in the EU, 2012, at 4, online: Financial Chamber of Commerce < http://ec.europa.eu/justice/newsroom/gender-equality/opinion/files/120528/all/143_en.pdf>
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