When I was in my twenties starting out in business, I asked the septuagenarian man sitting next to me at a meeting held at his private club whether it accepted women as members. Without missing a beat, he said, "Of course we do. We have many widows here." I thought that if he could not distinguish between women able to join a club on their own and those who gained membership as adjuncts to their husbands, he probably would have difficulty promoting or working for a woman in the business realm.
While finding women in executive positions is hardly novel today, finding them in the boardroom is much more unusual. This fact not only verifies a persistent hesitancy among established males to open doors to women, but it also may be a cause for concern over the strength of U.S. business.
Homogenous groups underperform in solving difficult problems, according to research in professor Scott E. Page's book, The Difference. "Groupthink," defined by Irving Janis in 1972 when he wrote about disastrous policy decisions, occurs when groups make decisions without considering all of the alternatives and consider unanimity more important than the quality of the outcome.
In my experience as a chief financial officer and currently as a board member for Accenture (ACN), Travelers (TRV), Viacom (VIA.B), and Wawa (WAWA), I've observed numerous situations in which women raised considerations that had not been brought up by men and that allowed for better discussions and better decisions—with ultimate unanimity. As Cathryn Cranston, board member of American Media, told me: "Women deliver their comments in an equally substantive, but less feverish, way than men."
A token woman on a board is not sufficient to make a difference, but evidence shows that those companies with several women board members report better financial results. Research conducted by Catalyst, a nonprofit corporate membership research and advisory organization, has found that companies with more women board members outperform those with fewer female representatives.
A 2007 study found that boards that held more women experienced return on equity 400 basis points higher, return on sales 400 basis points higher, and return on invested capital 300 basis points higher than boards with only token female representation—one or two women. To understand this dynamic, I asked an expert who makes her living recruiting board members and CEOs, Gayle Mattson, executive vice-president and global leader of the board and CEO practice at DHR International. She believes her clients are best served by her ensuring that searches are global and inclusive.
As an example, let me cite my own experience. I am the chairman of the Travelers' Investment and Capital Markets Committee overseeing more than $70 billion in investments. We did not have any major impairments like other insurance and financial services firms. I credited this both to our committee and to management, which is comprised of male and female global thinkers.
Asking the Right Questions
Women and ethnic minorities constitute the core of the slate of candidates Mattson presents. "Women change the dynamics of transparency and openness. Nothing is taken for granted," Gayle explains. Today, she finds a challenge in assuring that companies have multiple women board members. She cites that companies get into less trouble and have different risk profiles with more women board members. She worked with Principal Financial Group and is convinced they avoided the mortgage meltdown "…because board members asked questions early on. They looked at issues." This company's board of directors consists of four women and eight men.
In the past many board members were active or recently retired CEOs, mostly white males. Since the Sarbanes-Oxley Act of 2002, demand for financial experts skyrocketed. Women with financial expertise had board opportunities they didn't have before. I already served on the boards of Wawa, Accenture, and Pepsi Bottling Group (PBG) before passage of this law and have seen the great leap forward for women since then. Yet women with the potential to serve on boards need the same mentoring and teaching as high-potential men.
The best way to groom a future woman board member is to have the CEO work closely with her on strategic projects and financial priorities. In this process, she will have the opportunities to distinguish herself and build a network of various constituencies with whom the CEO works. This is a good practice whether the aim is to groom the female executive as a board member of the company for which she works or as an outside director.
Seeking Out Mentors
A company may well want to allow a few high-potential executives to work closely with members of its board of directors. Women need to seek experience with other board members if they want to be qualified to serve on boards in the future. When I was a chief financial officer for five years of Hannaford Bros. (acquired by Del Haize in 1999), I had monthly phone calls with one of our board members regarding economic conditions in our new market. She was certainly very interested in our business, but she also used these calls to prepare for her role on the Federal Reserve Board of Richmond. I viewed each call as a mini-exam and wanted to make sure that I provided accurate and insightful information and analysis to her.
She also had a regular call with the head of internal audit as part of her preparation as chair of the audit committee. I owe a considerable debt to this board member as I learned from one of the most intelligent, best-trained, and gracious woman I have ever met. Not every board member is willing to spend time with management. If you are looking to prepare yourself for a board position, choose as mentors those board members who care about development and learning. Such people groom future leaders.
Today, women no longer have to wait until men die to join many private clubs. Let's open the boardrooms to women directors who can keep your companies financially sound, be role models for talented young women, and make U.S. business even better.