Women on Corporate Boards Makes Good Business Sense

Judy Rosener

With few exceptions, corporate boards of directors have historically been composed of white males. That is

changing, albeit slowly. Based on the latest Catalyst figures, women constitute only 11% of Fortune 1000

company board seats, and 25% of Fortune 1000 companies still have no women on their boards. Admittedly,

Fortune 1000 firms constitute only a fraction of companies in the United States; however, because there is

limited knowledge about the board composition of non-publicly listed firms, we have to rely on the

information we have. This information prompts us to ask why there are so few women on major company

boards when apparently there is an interest in increasing the number?

Julie Daum, the North American board practice leader at Spencer Stuart, says, “When I began working with

corporate boards ten years ago, there was a reluctance to add women to the board. Many CEOs only added

women as a response to public pressure. Times have changed. Now, we see an unprecedented demand for

women as companies look to bring on a second or third woman.”

Carolyn Nahas, managing director of Korn/Ferry International in Southern California, says, “Today there is a

greater demand for women because it is increasingly acknowledged that boards should reflect the American

population and its customers—not just because itʼs the right thing to do, but because it makes good business

sense.” So if it makes “good business sense” why are there still so few women directors?

I asked a number of male CEOs of large firms why they have no women on their boards. Their response

most often was “Iʼd like a woman on my board, but I canʼt find one.” When I asked the follow-up question,

“What kind of women are you looking for?” I was given a list of qualities that many of their male board

members didnʼt possess. There is no shortage of women ready, willing and able to fill board seats, however,

if a company wants a woman board member, it has to look for one, which is what boards with women have

done.

Unfortunately, women with education, expertise and track records that qualify them for board membership

remain at a disadvantage when competing with men. In part, this is because those who make board

appointments tend to look at candidates within their own personal and professional networks. These

networks historically have not included women; thus there are few or no women on their radar screens.

While search firms include women in their director candidate pools, the disadvantage remains because doing

business with senior executive women is still a new experience for many men in client companies, and there

is a subtle comfort issue that canʼt be ignored. Put simply, we all prefer being with others like ourselves.

Why? Because we can understand and predict the behavior of people like ourselves. While unspoken, this is

a major reason men prefer to have men on their boards. Due to the discomfort and confusion men

experience working with women in other than traditional support roles, female board candidates are

frequently subjected to “competency testing.” Competency testing means women have to prove themselves

over and over again by meeting a set of criteria which their male competitors need not meet. As important,

women have to make sure those making board selections are comfortable with their style as well as

convinced of their competence.

If, as has been stated above, it makes good business sense to have women on boards, what is meant by

“good business sense?” Good business sense means taking into consideration the following: knowledge of

the labor pool; knowledge of new and growing markets; interest in improving corporate governance; and the

tracking of revenue and profit, i.e. attention to the bottom line.

The Labor Pool Argument

Women are in the workplace to stay, and many want careers, not jobs. If firms are to recruit and retain skilled

employees, corporate managers and future executives, they must consider women as an important part of

their labor pool. Women constitute one-half of the workforce, half the number of college graduates, and half

of those in graduate schools. Women are being trained for, and aspire to, senior level positions. They no

longer are content to occupy staff positions that donʼt lead to important line experience. So it follows that

paying attention to the best and brightest women, since they constitute a growing percentage of the labor

pool, is important. Companies that have women on their boards send a message that women are valued in

their firms. Conversely, when potential female employees and key existing employees see no woman on a

board, it raises questions about the corporate culture and a womanʼs chances for advancement.

The Market Argument

Today, women constitute a major part of most consumer markets, and it is growing as more and more

women assume responsibility for consumer purchasing in the home and car markets. Yet, their needs and

preferences are still frequently overlooked because their voices are not heard. I was once asked why a

profitable automobile company needed more women decision makers, to which I replied, “If women designed

cars, weʼd have a place for our purse.” In the professional legal and financial services field, too often it is

assumed it is men who make the major financial and legal decisions. While banks and law offices are

beginning to pay attention to the female market, their boards often donʼt reflect their customer base. Clearly,

board members donʼt get involved in day-to-day marketing and sales decisions. However, the presence of a

woman on a board makes it more likely, than not, that frequently overlooked female market issues will be

identified and addressed.

The Governance Argument

Perhaps the strongest argument for having women on corporate boards is that their presence often improves

corporate governance. Women board members have said their presence changes the conversation, not only

do sexist language and jokes disappear, but the number and type of substantive issues which are

considered is broadened.

I asked Shirley M. Hufstedler, an experienced corporate board member, how she thinks the presence of

women changes a board. Hufstedler served for many years on both the Hewlett-Packard and US West

boards, and currently sits on the Harman International Industries board. She said it is her observation that

female board members usually understand, better than men, how to appeal to women as consumers and as

employees. “Also, because women are acculturated differently from men, they tend to listen more and see

problems and solutions differently from their male colleagues.” In many ways this expands and enhances

board discussion and deliberation.

Women also tend to ask different questions than men. Jane Evans, who sits on the boards of Altria (formerly

Philip Morris Companies), Georgia Pacific, KB Homes and PetsMart, says “Women ask questions that men

donʼt think to ask, because women come from a completely different environment and vantage point.” Being

outsiders, even as directors, women are more likely to ask questions that male members avoid. Being an

outsider gives one a sense of freedom that insiders donʼt always have.

The role of the CEO in promoting women to leadership positions, such as board membership, turns out to be

key. A good example of a committed chief executive is Leonard Schaeffer, CEO of Wellpoint, the nationʼs

largest publicly traded healthcare company. Wellpoint is a Fortune 500 company and four of its nine-member

board are women (one of the highest percentages in the country). Twenty five percent of its executive vice

presidents are women, 26% of senior vice presidents are women, and 36% of general managers are women.

Wellpoint is a very successful firm financially, and if its CEO could find four women to serve on a nine-person

board, it would seem other chief executives and nominating committees could find one!

The Bottom Line Argument

A study by Roy Adler, a professor at Pepperdine University in Malibu, California, tracked 215 Fortune 500

companies, comparing their financial performance to industry medians. He found that “companies that

smash the glass ceiling also enjoy higher profits.” In a recent Harvard Business Review article presenting his

findings, Adler showed that “the companies with the highest percentages of female executives delivered

earnings far in excess of the median for other large firms in their industries.”

Much more research about US firms, particularly those other than large, publicly held corporations, is

needed to explain how and why the presence of women on corporate boards makes good business sense.

However, in the meantime it is hard to ignore the evidence that putting women on boards makes good

business sense. Doing so is consistent with the nature of the labor pool, the important female marketplace,

the need to improve corporate governance, and the ever-present competitive requirement to increase

revenues and profits.