2011 trends: Corporate governance and woman-power

by Urs E. Gattiker on 2011/01/06 · 22 comments 12,819 views

in d business ethics,d business failures,d business Fortune 500,d business regulation,d business wef davos

Things have certainly changed in the last 20 years, as growing numbers of women are rising to the top executive level and joining corporate boards.Image - photo portrait of Güler Sabanci, Chairperson of the Sabanci Group of Turkey - photographed by Ed Robinson/OneRedEye

The FT saw fit to publish a magazine about the top 50 women in business. Using a panel of ‘experts’, inclusion in the list was based on such criteria as:

    “…biographical data, size, scope and complexity of the company (including turnover and number of employees, number of sectors and countries of operations) and the competitive landscape…”
    (2010-11-17 – FT Women at the top, p. 8)

The FT organized a Women at the Top conference, put Oprah Winfrey on the cover of the 2010-12-11/12 FT Weekend Magazine, and provided more coverage to address this popular topic, with the pleasant side-effect of generating revenue for the publication.

Learn what women’s increasing participation in global economic growth and legacy of drivers of innovation means for corporate governance, risk assessment and managing public relations disasters.

    1. Moving toward improved gender balance on European boards

Image - graphic - showing 14.1 percent of banks' board members are women while the European insurance companies have 9.5 percent.Women are still a clear minority on European boards. This may seem surprising since we recently had a debate about whether undue risk-taking by male-dominated boards may be partially responsible for the financial crisis. Would ‘Lehman Sisters‘ have avoided getting into so much trouble?

Nevertheless, most of us agree that the advantages of diversity, including

    – eduction,
    – work and non-work experience,
    – gender, and
    – nationality and/or culture

can help boards draw from a broad socioeconomic spectrum, which makes succeeding in the global marketplace more likely.

This post is part of our series of 25 blog posts (2011 trendwatch and social myth busting briefs) and 8 webinars. Please enter your email address below to get the next post first in your email inbox; you will be glad you did.

    2. Holding line-management positions is critical

Image - graphic - Female board members - percent change between 2006, 2008 and 2010 - gender climbs up boardroom agenda - Nordic countries lead the pack - European Professional Women's Network presentation slides, p. 7As indicated, women are still under-represented on corporate boards. For instance, men fill 85 percent of Fortune 500 board positions.

Research by the European Professional Women’s Network (get report) indicates that on average, membership increased from 8 percent in 2004 to 12 percent in 2010. Another study suggests that this number ranges from 3.5 percent in Portugal to 31.9 percent in Norway and results in a European average of 12.2 percent (see below and full report).

However, Norway’s ‘golden skirts’ as they are known in the media, have been criticized for being on too many boards, resulting in huge time commitments in addition to their full-time jobs.

Data also indicate that some women may get their board appointments from a key functional or service role, such as human resources, or from an external adviser role. This may encourage women to go this alternate route instead of accepting the line-management and CEO roles that are so valued when evaluating prospective board members.

Alert – please sign up for our next Trendwatch webinar: Luxury brands social media marketing on 2011-01-13, Thursday.

    3. Governance and regulation that works

Image - Female members on European boards percent change between 2004 and 2010 - much room for improvement - Nordic countries lead the pack.Governments can impose quotas regarding board membership as was done in Norway, but with lawyers to guide them, companies can also tip-toe through any thicket of rules and regulations.

While one can force companies to follow a regulation in the technical sense, that does not automatically mean their compliance will conform with the regulator’s intentions, such as getting more women into line-management positions.

Vague requirements can be more effective in instilling a sense of caution. A good example of this and one well worth following is the UK Takeover Panel’s approach of simple rules with an attached warning to companies and boards:

    “…their spirit must be observed as well as their letter.”

In this case organizations will be more cautious about feats of discriminatory contortions in top management positions.

    Bottom line and take-aways

Promoting women to higher board positions by means of quotas works in Norway and public opinion also pressures companies to improve on this score. However, rebuilding trust also means that boards must better represent their various shareholder groups, customers and the public.

A “…voluntary, time-limited quota, whereby over 10 years companies fill board vacancies with female candidates until they reach at least 25 percent,” seems useful. Nevertheless, getting women into more top line-management positions is most critical, as it will provide the experience so highly valued by investors when looking for new board members.

On average, serving on a board requires 15 hours of work every month. This time-demand could double or triple if one also works on important subcommittees, such as the compensation or risk management committee, or during an economic crisis. Accordingly, best practice may suggest that being on more than three boards is not to be advised and can therefore no longer be accepted as such.

Image - text - FT 2010-11-10, p. 10 Women have taken over the company. How will I survive? Advice from FT readers: be yourself = 2 x as competent as any woman; suck it up; be a man; find inner woman; think of yourself as a scarce resource in this environment...

Finally, we are still a long way from men being in the minority when it comes to holding key management positions. More diverse boards and top management teams should help improve companies’ risk management and governance. This will benefit employees, the public and shareholders alike, a real win-win situation.

If you like this post, please share it with your friends. How about asking them to comment after reading, I love to hear what people think!

Are you with me on these gender and diversity issues? What can companies do to increase diversity in top management? Please leave a comment; the floor is yours!

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  • http://finchesblog.blogspot.com Brian Finch

    At least for the UK, this picture is misleading. FTSE Female Board Report from the International Centre for Women Leaders at Cranfield Business School shows both a slowing in female appointments but also that the rise over a number of years has been largely a result of non-executive appointments. Whilst they find a 12.5% female participation rate in total, it is only 5.5% for executive directors. Until companies and professions become more open to flexible career paths, including career breaks and flexible working, this waste of talent and resources will continue. And, of course, there is no good reason for companies (or professions) to take such a conservative approach – it is pure machismo. nnAs for some countries setting quotas – well that’s just another way of avoiding the issue. Lots more female non-execs but little progress on the issues that matter.

    • http://My.ComMetrics.com Urs E. Gattiker

      Brian,nnthanks for pointing out the FTSE Female Board Report that indicates that while female appointments are increasing, many are of the non-executive kind. nnReading your comment I find we agree on more than we might disagree. I also point out that line-management and CEO roles are critical for getting women more into executive board positions. nnNon-executive board members have to be able to do lots of things. Not only do they support and advice executives, they should also challenge them. In some cases, they have to get rid of them. Of course, they are also supposed to be hot on compliance and corporate governance. nnUnfortunately, almost no one can do all of the above. One reason why we need diversity of personality besides diversity of gender.nnBrian, thanks so much for sharing.

      • http://My.ComMetrics.com Urs E. Gattiker

        BriannnThanks for pointing me to the book:nnCaplan, J. (Dec. 2010). Promoting talent management across the organization. London, UK: Kogan Page ISBN` 9780749459840nnI read quite a bit of the sales literature on this work.nnAmongst other interesting things, in the promotional literature for the book I found a blurb stating that the book proposes the:nn”… inclusive approach to talent management which recognizes that to survive and prosper in this world, organizations require strategies that develop strengths, value diversity and encourage creativity across all levels of the organization.”

        • http://finchesblog.blogspot.com Brian Finch

          I see a cultural difference, with US boards mainly comprising non-executives whereas a British board will almost always include all the key executive management. But you were absolutely right 20 years ago, as long as women are kept out of those key operational roles because a career break or a decision to take a less demanding role for a period is deemed to disqualify them, progress will be very restricted.nnI think there should be much more protest about this issue. The targets for protest (and persuasion) need to be corporations themselves but also the headhunters/recruiters who reinforce these conservative attitudes.

        • http://My.ComMetrics.com Urs E. Gattiker

          Brian, nnThanks for replying to the non-executive and executive board member issue. Governance is an important aspect. Interesting in this regard is a recent study presented at the annual meeting of the American Accounting Association that examined: nn- 296 major financial institutions around the world with assets exceeding $10 billion n- over the seven quarters from January 2007 through September 2008. nnThe sample consisted of banks, brokerages, and insurance companies in 30 countries, including 125 in the U.S. and 131 in Europe.nnWhat did make a significant difference, was the amount of company stock owned by institutional investors, with greater institutional ownership translating into poorer stock performance.nn- u201c…our findings cast doubt on whether regulatory changes that increase shareholder activism and monitoring by outside directors will be effective in reducing the consequences of future economic crises.u201cnnCorporate insiders want to protect their jobs (hide the bad news) while u201c… independent directors have an incentive to avoid the reputational cost of a bankruptcy by pressuring firms to raise equity capital.u201d (raise equity in markets).nnErkens, D., Hung, M., & Matos, P. P. (September 10, 2010). Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide. ECGI – Finance Working Paper No. 249/2009 CELS 2009 4th Annual Conference on Empirical Legal Studies PapernnThe above study casts doubt on whether focusing on a internal versus external board member debate makes a great difference to the overall performance or the Return-on-Investment – ROI the company will produce.nnHowever, women with line experience working in top management including being CEOs are more attractive for possible board membership than those without such experience, as you point out as well. nnI also agree that we need to pressure companies for promoting women into these positions. But we have made progress and continue to do so.nnThanks for sharing.

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