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Posts Tagged ‘women on boards’

Diversity – not just for Halloween

When I was in Norway last year, I took the opportunity to research the experience there of women on Boards – had the sky fallen in after all companies had to appoint at least 40% female Boards? (the quick answer is that nearly everyone in Norway thinks it was a non-event). There has been a flurry of research and articles recently, as other European countries consider following in Norway’s footsteps (so far Australia’s response has been restricted to requiring better reporting).

The most reported research has been this study (pdf) by Cranfield University on Gender Diversity on Boards: the Appointment Process and the role of Executive Search firms. The study was in two parts; a general review of the process of Board appointments, and then a specific set of interviews with headhunters to understand the appointment process from the key intermediaries in the process.

One of the first observations was that change in the pool of Directors appointed will come from changing the criteria – the brief given to the Executive Search firms. If you focus on experience, rather than skill set, you are going to appoint the same set of people who are already on boards:

So our next step is to say, what you’ve got to look at it’s not experience,  i.e. I want somebody who’s either been on the Board, or been on the executive committee of a large company, is I need someone who can make a contribution around the Board table. Using our competencies, it is about strategic input, about focus on results, around influencing style and skill, and integrity and independence. Those are sort of the four major areas we look at. And what we say is you can get those skills from people who haven’t been on the Board yet.

But there is also quite a lot in the study about the later parts of the process, including the interview process:

As you know, many interviews are ‘Oh, you worked at JP Morgan, do you know X? Oh, a lovely chap, he knows all these people I know’. So… but is he any good at the job? ‘Oh, we never got there. We never actually got to the meat of it’. [...] Now, what you want people to do, when they go through a series of interviews, is to be asked the same questions, or at least cover the same issues. And that’s one of the weaknesses of a lot of interview processes, is that many people don’t know how to interview, and don’t know what to interview for. So our interviews are structured interviews based on behaviours, based on competencies. But if Board members don’t know how to do that, then they may come up with the wrong answer. So, actually, a lot of it is about training directors to look for the right things.

And right at the end of the process, when a fabulous woman has been found, the executive search firm also has to gee up the Chairman to appoint a woman:

The critical moment is often towards the end where there are two candidates, and the female candidate is maybe the less experienced one.  And it’s preventing the Chairman from losing his nerve when somebody else around the boardroom table may say, well I like them both, and Jim looks like a terrific chap, but look at his record, but she’s never sat on a FTSE Board before, she’s been on the Board of her own business. So there’s a danger of constant voices of conservatism, and actually part of the value that we add is just helping the Chairman say ‘No, remember what we’re after.’

This opinion piece from Allison Pearson in the Financial Times breaks down the research for those who don’t feel like reading an 80 page report:

A report this week by Cranfield School of Management bears out my theory. It says the appointment of women to FTSE 350-listed non-executive director roles is being held back by selection processes which “ultimately favour candidates with similar characteristics to existing board members”. Or penises, as they are more widely known. Chaps are more comfortable with other chaps. Only when a woman has been foisted on them and does a terrific job without crying or talking about Tampax do they start to see that we can be quite useful.

McKinsey has done the most definitive research on why this matters – performance of companies generally improves with greater gender diversity at senior levels. But the final word should go to this post from a Silicon Valley venture capitalist :

This is why I personally care about diversity: it’s the canary in the coal mine for meritocracy. When we see extremely skewed demographics, we have very good reason to suspect that something is wrong with our selection process, that it’s not actually as meritocratic as it could be. And I believe that is exactly what is happening in Silicon Valley.

There’s plenty of good research on the subject of team performance that shows that diverse teams outperform homogeneous teams on many different kinds of tasks. The problem is that this research doesn’t argue for demographic diversity, but rather for a diversity of perspectives. So, again, racial or gender diversity is not an end in itself. But we have to ask ourselves: if teams are consistently being put together with homogeneous demographics, what are the odds that they also will contain a diversity of perspectives? Shouldn’t we be worried that the same selection process that produces homogenous results in one area might be accidentally doing the same in the area that we care about (but that is harder to measure)?

Cross posted at Actuarial eye

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This is a departure from my usual Travelling Feminist post. But I’m in Norway, and Norway, in the 21st century, is proud of its position as one of the most equal countries (by gender roles) in the world.  Statistics Norway has a special gender equality index, and 40% of the parliament (the Storting) is female. Norway has gone further than most in one particular respect – they have legislated for approximately equal gender representation on listed Boards:

Companies are required to have at least 33% to 50% of each gender depending on the size of the board (see details in the document attached). The 40% requirement applies to boards of over 10 members. These percentages are for the shareholder representatives. And for those who wonder, yes, one company did have to search for a male board member to reach the target! (Source: Europeanpwn)

The process the Norwegians went through was two fold. In 2003 (when the percentage of women on listed company Boards was 9%), they introduced the concept, with a deadline of 2005, but no sanctions for non compliance. And then in 2006, they went further, and said that by 2008, those companies that were not complying would be delisted. And now Norway has more than 40% women on its listed Boards. The effect has trickled into non listed companies, as well, with the percentage of women there rising as well, to 17%. The change has been studied by a few different people.

The only quantitative study, by Amy Dittmar and Kenneth Ahern of the Ross School of Business at the University of Michigan found that the companies with the smallest proportion of women at the beginning of the period of compulsion lost the most value compared with their peers – their hypothesis is that they were most likely to be forced to appoint unsuitable candidates. They found that female directors were significantly different from their male peers – they were better educated (more likely to have an MBA), younger (around 8 years on average) and less likely to have been a CEO. They also found that the proportion of listed companies out of Norway’s total seemed to have reduced (with a reduction in the number of listed companies, and an increase in the number of listed).

Although their study did try and correct for the possibility that the companies with more women on Boards at the beginning were better companies to start with (which is a reasonable hypothesis, given several studies showing statistically better performances from companies with more diversity at Executive level), by comparing with similar US and Scandinavian firms to see if the performance gap was similar, and by correcting for industry differences, it still seems to have relied fairly heavily on market capitalisation at a particular point in time (compared with net assets – the Tobin Q) as a measure of which companies performed, which makes me suspicious, given that the point was in the middle of the global financial crisis. The measurements were relative, rather than absolute, but the strongest argument that comes from this study for me, is that compulsion should be more gradually introduced.

Kate Sweetman spent some time interviewing directorsof Norwegian companies who went through the change. She interviewed men and women, all of whom were already directors, and almost all of whom opposed the change. Two years later, in a series of one-on-one interviews, every single person said that the boards were measurably improved with the addition of the women…some direct quotes:

* “If I had to generalize about the differences between men and women on boards? Women are more interested in getting the facts. Much more prepared; ask many more questions. Men tend to shoot from the hip.

* “What do women bring? We used to be a fraternity of men sitting on each others’ boards. The real issue is the fraternity of men. It is necessary to break up the in-breeding. It is unhealthy how the men protect each other. They are unwilling to go up against the CEO, for example.”

* “Think about the difference between an evening out with 3 of your girlfriends, or a guy and 3 of his guy friends, or two couple friends going out. It is always more interesting when the couples go out. Very different dynamics. The group dynamics totally change. More civilized. Less swearing, less jockeying for position. The problem with jockeying is that jockeying is about the individual’s position, not about the company.”

And Aagoth Storvik and Mari Teigen, both senior researchers at the Institute for Social Research in Oslo, released a study that argued that without both the compulsory quotas and the accompanying sanctions for non-compliance, it would be next to impossible to increase the number of female board members. This articlein Der Spiegel quotes from the study, and the researcher, pointing out that 7 years after the concept was introduced, nobody in Oslo is worried about it any more.

“But after the reform went into force almost nobody seemed to object, hardly anybody is writing about it in the newspapers any more or telling us about negative experiences.”

Australia, where the percentage of women on listed boards was 8% in 2010, recently went through a period of soul searching about this issue. The same arguments as were used in Norway (here outlined by Kate Sweetman) were used as to why quotas are a bad idea:

Quotas are wrong because they are about diversity and business is about meritocracy; quotas are simply a form of institutionalized reverse discrimination–what about the men?; government has no business interfering with the workings of business; quotas on boards flew in the face of shareholder rights; if qualified women existed, we would already have them on the boards; women don’t really want this anyway.

After several people publicly called for quotas, the proportion of women changed faster than it ever has – reaching 10% in less than a year. But 10% is still a long way from 40%. Should there be quotas? The Economist recently argued strongly that this was the wrong way to change the proportion. They ultimately viewed the financial study as more powerful than any other arguments. Although their piece made powerful points that women are consistently underestimated by men (based on a study by INSEAD) and that women are less likely to have a powerful mentor than men – often key to making it to the very top of a corporate, they seem to end up with the view that the main reason that women don’t make it to the top is that old saw – work life balance – they don’t just get the experience needed to get to the very top, and they don’t want to put in the hours.

But a much bigger obstacle to putting more women in boardrooms is that so many struggle to balance work and a family….Partly because it is so tricky to juggle kids and a career, many highly able women opt for jobs with predictable hours, such as human resources or accounting*. They also gravitate towards fields where their skills are less likely to become obsolete if they take a career break, which is perhaps one reason why nearly two-thirds of new American law graduates are female but only 18% of engineers.

I once would have agreed with them, being very cautious about the concept of quotas. Quotas can lead to adverse consequences in many different situations – just those that the Norwegian directors were fearful of. The thought of being regarded as the “token” – not there on merit, but because of a rule, is appalling. But the Norwegian experience suggests to me that it is not just a matter of lack of experience. Unless they are forced to, companies will fall back into comfortable habits when hiring people, particularly those, like board members, for whom it is difficult to define competence or success objectively.

Once more women are let into the boardroom, astonishingly enough, they add value just as they are. Quotas had the effect of forcing companies to hire women who were already capable of adding value to the companies that recruited them.  The last word should go to Hilde Tonne, an executive vice president and head of communications at Telenor, a global telecommunications company based in Oslo, from the NY Times:

“We have excluded women for 1,000 years,” she said, with a smile. “So we have already had quotas — it’s just that they were for men.”

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* This is a minor point, but one that has to be made. Most articles you read about women on boards say that not enough women take the hard operational jobs – running an operational division, or being the CFO, rather than HR and marketing. Yet the Economist is talking about women going into easy jobs like accounting and suggesting that is why they aren’t Board members! Really, we can’t win.

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