Why Aren't There More Women on Boards?

Moving past tokenism and box checking opens doors to more diversity

For those of us who monitor the number of women in the executive suite and boardroom, the announcement that Meg Whitman was stepping down as CEO of eBay after a long run was a disappointment. But, the very fact that gender was not prominently featured in the reporting on her departure is a measure of progress, because it was no longer deemed relevant. What is significant is the steady stream of evidence that diversity in the executive suite and boardroom makes plain economic sense. Looking at return on equity, return on sales, and return on invested capital, Fortune 500 companies with the largest number of women directors significantly outperformed those with the least representation, according to a Catalyst report in late 2007.

But, there remains a striking disconnect between this financial imperative and the actual numbers of women sitting in seats of influence. Across the country and throughout industry after industry, the numbers at the top are dispiriting. Consider Catalyst's 2007 Census of Women Board Directors: women held 14.8 percent of all Fortune 500 board seats in 2007, compared to 14.6 percent in 2006. Almost no improvement. Or, take the report from the Alliance for Board Diversity, Women and Minorities on Fortune 100 Boards: between 2004- 2006, men maintained their overwhelming dominance as directors, with 83 percent.

Clearly, the numbers indicate a glacial pace of change. My own experience working with men and women in executive positions and as a board member strengthens my conviction that women can and do make enormous contributions across all industries, as diverse as real estate and retailing and on issues ranging from compensation to product development. The discussion, which historically has been driven by the morality and ethics of including more women on boards, is now about how the presence of women can improve business performance.

Beyond Tokenism

We should be past the point when placing a woman—or, for that matter, an African-American or Hispanic— on a board is part only of a diversity push. This is tokenism, and breeds a nasty vicious cycle: "overboarding" by the very top women and minorities, and selfsatisfaction among other directors that they have done their duty by bringing in one or two diverse board members, which, of course, makes it tough for other women candidates to be considered.

The real reasons for women to be on boards are that we bring valuable business experience and a cultural perspective that is just as important as a director with an international or political background. Consider the economics: women are responsible for 85 percent of all direct consumer spending (more than $3.7 trillion) and influence 95 percent of all goods and services purchased.

In fact, the forces for change are genuine and taking root. The 10th annual census of Chicago's largest 50 companies from The Chicago Network illustrates the encouraging news—and the scope of the challenge. The percentage of women directors has risen 43 percent over the decade, but still stands at only 14.3 percent of all directors. There are more women CEOs at Fortune 500 companies today than ever before, and they lead a thoroughly diverse set of companies in global industries, from agricultural giant ADM (Patricia Woertz), to Xerox (Anne Mulcahy), Pepsico ( Indra Nooyi), Kraft (Irene Rosenfeld), and Sara Lee (Brenda Barnes). But for all of the gains, the small total number of female CEOs at Fortune 500 companies cannot be ignored—13.

Perhaps more important is the sight of legions of women who now hold middle and senior management positions—CFOs, business unit heads, and the like. The Chicago Network's 2007 Census reported that the percentage of women among top five executive officers has doubled over the past decade. This growing talent pool is vital: these are the kinds of candidates that will make up the next generation of CEOs and directors. With more companies restricting the number of boards their CEOs can sit on, new opportunities for women directors should open up to these executives.

Barriers to Change

With these encouraging signs, the pace of change must accelerate. Why haven't more women been elected to corporate boards? One reason is that there are fewer sitting CEOs and retired women CEOs available to sit on boards. Until recently, these have been the most popular sources for new board members. Women faced a Catch-22: Previous board experience was important, and without that, getting on your first board was even more difficult. But, in recent years, as boards broadened their sights beyond CEOs, they've clearly failed to see the full array of highly qualified women.

More than a decade after the federal Glass Ceiling Commission identified hurdles in the path of women's advancement, it's clear that there is still some resistance to changing the balance of power and decision-making— resistance that will subside in the face of more and more examples of the economic payoff from the increased influence of women. Are we not yet seeing significant numbers of women on boards because many do not follow the traditional paths to power? The answer is a qualified "yes." A large number of smart, capable women leave the workforce permanently or for some time to accommodate family needs. This is an enormous puzzle that remains to be solved. Corporate America has yet to come up with innovative and flexible solutions to balance family and career. It requires more imaginative approaches, flex-time programs, job-sharing, and more affordable childcare.

Meaningful change will not happen without full support from the CEO. Directors have a crucial role to play, too. They must understand that a board representative of the marketplace and reflecting all available talent enhances a key goal—stewarding the company to maximize shareholder returns. But, what isn't measured doesn't happen. Consider tying compensation to specific, measurable diversity goals. At CVS/Caremark, where I'm one of three women board members, each member of management is required to meet diversity targets before receiving his or her maximum bonus.

Nominating committees must look beyond the usual pool of suspects, and require a diverse slate for every open board position. They should tap into women's networks, and insist that search firms broaden their sights. Certainly, the committee must look beyond CEO candidates, who, I'd argue, don't provide all of the strengths a board needs. Diversity of talent is required—not just a board composed of sitting and former CEOs. That should open up seats for women near the top.

I'd suggest that boards consider another change that is both good corporate governance and good for women candidates: set term limits. This is not popular, but it is a far more effective option than setting age limits. After a time— say, 15 years—the needs of a company are likely to have changed and, with it, the needs of the board. I'm convinced the longer the tenure of a director, the greater the likelihood a board becomes less vigilant and less effective.

Sitting women directors have responsibilities, too, and not just to ensure that the company is committed to diversity up and down the organization, but across its supply chain. Women directors have an obligation to bring on more women directors. If, after several years as a director, there are no other women directors among them, they are not doing their job. "One and done" or "two and through'" is the type of boxchecking that hinders diversity.

Tangible Results

Studies show women do make a difference. The Catalyst study found that Fortune 500 companies with the highest percentage of women on their boards experienced equity returns that were 53 percent higher than those with the fewest number of women on the board over the four-year span of the study. Furthermore, there is an increase in performance for companies with at least three women on the board. Companies in this group managed a 16.7 percent return on equity compared with 11.5 percent for the average company during the period.

Our presence in the boardroom makes the discussion more collegial and can open minds about strategy and product development. Shouldn't women also be at the table when business decisions are made about what services and products the company will provide? As a member of the CVS board, the three women board members regularly meet with the head of retail operations to talk about what we, as women, would like to see on the shelves. One tangible outcome: we helped devise the air travel packet for three-ounce bottles.

In my capacity as a director of real estate companies—Equity Residential and Equity Lifestyle Properties—the role is somewhat different. This is an industry typified by a cowboy approach, dominated by men. Women directors have helped changed the tone. On compensation committees, for instance, discussions have moved from how much smarter or better compensated an executive is to what we can do to support managers and make our people better.

In the four decades since I received my law degree, I've seen my share of glass ceilings, broken through several, and run up against some brick walls. However, the one thing I know to be true is that progress is achievable. We have made strides over the last couple of decades. There are more women in positions of power leading world-class companies. No one is embarrassed any more to have the conversation about getting more women on boards and into executive suites, which we could not say even five years ago. And, five years from now, it will look very different again.

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