Beyond the numbers on gender diversity

More focus on the role and influence of women in boardrooms is needed.

Gender-diversity targets in governance have made a vital difference. They have raised awareness of the issue and led to substantive progress on female appointments, though much more is needed. But numbers alone do not show if female directors have equal opportunity for boardroom influence.

Yaron Nili, Associate Professor of the University of Wisconsin Law School, has considered the issue of ‘substantive gender diversity’ in a paper for the Indiana Law Journal.

Dr Nili argues that investors and advocates of gender diversity must look beyond the ratio of female directors in the boardroom and account for their roles and functions, once elected. Meeting diversity targets is not enough if female directors cannot make the same impact as their male peers.

He wrote: “While the efforts of investors to increase the representation of women on corporate boards are important, they may be falling short of their intended result. This is because too much of the time, the conversation about gender diversity on boards stops at the idea of hitting a ‘magic number’ of gender representation– sometimes as few as a single woman.”

Gender-diversity research by the Australian Institute of Company Directors (AICD) and others has focused mostly on the percentage of women in ASX200 boardrooms. That is understandable and valuable, but such metrics do not show if female directors have the same opportunity for influence in the boardroom as their male peers.

Investors, too, have mostly focused on the quantity of female directors in voting recommendations. The Australian Council of Superannuation Investors (ACSI) last year voted against the re-election of directors of a handful of ASX 200 companies that have poor gender diversity on their board.

Overseas, State Street voted against hundreds of boards that failed to nominate female directors; giant US pension funds have launched gender-diversity campaigns; the largest proxy advisory firms announced gender-diversity voting policies; and BlackRock updated its guidelines, wanting to see two female directors on every public company board.

These campaigns are working: for the first time, women and minorities accounted for half of the new independent directors appointed on S&P500 companies last year, noted Dr Nili. In Australia, the proportion of female directors on ASX boards has risen to 26 per cent, three times the level in 2009, although progress slowed last year.

But this gender-diversity push is almost always based on the number of female directors rather than their role and opportunity for influence. The data, in Australia and overseas, does not show whether female directors lead sub-committees or their path to the chair role. We don’t know enough about whether the role of women on boards differs to men and, if so, how.

Findings on differences for male and female directors

Dr Nili found significant differences for male and female directors exist, based on a study of S&P1500 companies in the United States in 2007-2015. He found men have an average board tenure that is 2 to 2.64 years longer than women, although the disparity may be a by-product of recent female appointments.

Men were six times more likely to serve as the Chair than women, the study found. Only 1 per cent of the entire female sample in the study served as Chair. Men were two times more likely to serve as ‘lead directors’ on boards compared to women. The role of lead director is becoming more popular in US boardrooms, particularly where the chairman/CEO role is combined.

Dr Nili found some progress in the appointment of women to chair board sub-committees in the US, an important part of building boardroom influence, as well as credentials to later chair the full board. But women had less representation on all-important audit committees.

This study is a useful contribution to the gender-diversity debate. Anecdotally, most ASX 200 boards would say they treat male and female directors equally and this is almost certainly true for the majority. But there is not enough empirical data on Australian boards yet to support such claims and Dr Nili’s research shows this is not the case in the US. Equally, companies must do more than appoint a female director to the board, to meet gender-diversity targets and appease investor concerns. As significant, is ensuring that director has the same access to opportunity within the boardroom as their male peers.

As Dr Nili writes: “Substantive leadership gaps between the genders on public companies’ boards must shift gender diversity advocates away from a micro-focus on numbers. The past year proved that change is possible. Now, investors and regulators must turn their attention beyond the numbers to the systematic disparities between women and men on boards. If women are not moving into positions of power on boards, or are otherwise treated differently on boards, we need to know why, and we need to understand the cost.”

It is a question well worth asking when men are still six times more likely than women to chair a board and have far greater representation in positions of power on boards.

• Nili, Y, “Beyond the Numbers: Substantive Gender Diversity in Boardrooms”, Indiana Law Journal, Vol.94 (forthcoming).