Did you know that the percentage of women on corporate boards is smaller than the proportion of seats held by directors named John, Robert, James, and William? As we focus on International Women’s Day on March 8, a recent report from the EY Center for Board Matters sheds new light on gender diversity on U.S. corporate boards and shows that the pace of change is still glacial.
The report, which looks at diversity in U.S. boardrooms at the time of their 2014 annual meetings, found that only 23% of new board members at the S&P 1500 were women, and this has grown only about 1.5% each year since 2009.
The tide is gradually turning, but findings in the report reinforce the types of actions companies can take to accelerate the pace of change at their highest ranks. Short of gender diversity quotas for boards that some other countries have adopted, following are four suggested steps U.S. companies can take to enhance board diversity:
Consider increasing board size to the optimal levels while functioning efficiently.
Larger boards are more likely to include women than smaller ones, so one way to drive gender diversity is to add female directors. Only 54% of S&P 1500 companies with a board size of seven directors have at least one female director.
However, nearly all boards with 12 directors (98%) have at least one female director. If companies rely on natural turnover to alter gender composition, change may come much more slowly. While boards are under tremendous pressure to limit their size to work effectively, growing a board to 12 seats will not make it unwieldy. If companies can afford to make the investment, boards with seven or eight seats have room to grow without becoming an impractical size.
Revisit retirement policy – is it stalling change?
Adding women to a board is an effective way to start on the path to gender diversity, but companies that employ it as their sole strategy risk bypassing true reform. Slightly more than half (51%) of the companies that increased directorships held by women last year did so by increasing board size. These strides are commendable, yet they raise questions about whether companies are genuinely refreshing their boards’ makeup and their diversity of perspectives.
Though term limits that hasten turnover are relatively uncommon in the United States, as of 2013 EY found that more than 70% of S&P 500 companies had retirement policies for directors who are age 70 or older (interestingly, more than half of these had a retirement age of 72). Considering that nearly a third of male directors in the S&P 1500 are over 68 years old (31% vs. 11% of female directors), companies may want to evaluate whether lowering their retirement caps could open up more seats to women, sooner.
Additionally, outreach with investors and directors found that term limits and retirement age alone may not necessarily lead to thoughtful and regular board refreshment. Blunt instruments like term limits and retirement age do not factor in the contributions of valuable long-tenured directors. However, they do start a dialogue and open the door to fresh perspectives and gender diversity.
Expand search criteria to accommodate a broader range of experiences.
Companies that have successfully incorporated women into their boards understand that to increase gender diversity, they must be flexible in how they think about candidates’ qualifications and career history.
It’s a non-starter for board diversity when companies only seek directors who have served as a CEO or board director as there were so few women in either role. But progress is being made to widen the net. Although public board service remains a top qualification for directorship at most companies, these numbers indicate a growing emphasis on different yet equally valuable experiences.
For example, the study found that the primary qualification sought for directorship in recent years is expertise in the company’s industry or a related one. Additionally, while nearly two-thirds of women joining boards in the two years prior to the study were industry executives, less than 20% of them were current or former CEOs. Investors and directors understand that boards require the skill sets and expertise needed to provide strategic counsel and oversee key risks facing the company. As a result, the composition of the boards should change in line with the evolving strategy of the company.
Take meaningful action to build the leadership pipeline.
Organizations can be proactive about giving women and men equal opportunity and visibility in the company. High-performing employers do this through formal sponsorship programs, initiatives that expose women to all company operations and functions, and steadfast support for women from their CEO.
Women tend to be over mentored and under sponsored in comparison to their male peers. And men who are promoted are more likely to have sponsors advocating for them. By exposing high performing women to “hot jobs” and roles focused on profit and loss and corporate strategy, companies can facilitate access to upwardly mobile opportunities for women.
Study after study shows that achieving gender equity in the C-suite and on boards improves company performance. Nearly 60% of S&P 500 companies say they specifically identify gender and ethnicity as a consideration when identifying director nominees, but that is not always reflected in the gender and ethnic makeup of the board, EY 2014 research shows. Disclosing a formal process to support board diversity including providing clarity around what is considered an appropriate level of diversity can highlight efforts to recruit women.
We would like to suggest that we stop validating why boardroom diversity is an economic imperative, and begin treating it like one. To catalyze change on their boards, together let’s be practical, act swiftly, and be open minded about the qualities necessary for board membership.
At the same time, establishing programs that actively build the pipeline of women executives and directors will help put even more women on the path to leadership.
Karyn Twaronite (@KTwaronite_EY) is EY's global diversity & inclusiveness officer and Ruby Sharma is a principal at Ernst & Young LLP and EY Center for Board Matters.
