Boardroom Diversity Is Good Corporate Governance

In her article "How to Get More Women in Banks’ Senior Ranks," American Banker's Editor at Large Barbara Rehm concludes that one of the fundamental reasons why we don't see more women in "banking's inner circles" is because they lose hope.  She concludes that, "one way to get more women in the C-Suite is to get more women on bank boards of directors." 

Since 2009, board diversity in U.S. public companies has not moved, with women holding approximately 16% of board seats of Fortune 500 companies, an increase of less than 1%. In other words, there has been no change.

Among the lessons of the financial crisis is that entrenched boards may have contributed to the problem. According to a number of studies, board diversity can help guard against "groupthink" which is more likely to occur among cohesive groups lacking social, cultural and ideological diversity. Such cohesive boards may be less likely to identify risk factors, critique proposals or follow-up with requests for additional information. Ensuring that corporate boards include a diverse set of skills, backgrounds and personalities will help against groupthink's dislocation of corporate and shareholder interests. Therefore, board diversity is not simply a women's issue or an issue of fairness. Rather, boardroom diversity is an issue of good corporate governance. 

In our report, "Breaking the Glass Ceiling: Women in the Boardroom," we look at 30 jurisdictions to explore the various approaches these countries have taken to address the issue of gender disparity on corporate boards. 

Globally, countries have adopted a variety of approaches to increase gender diversity on corporate boards.  These strategies include legislative measures such as quotas and voluntary targets, corporate governance codes and stock exchange listing rules requiring disclosure and gender diversity recommendations among selection criteria for directors. 

Europe has led the way in instituting quotas. Norway began the trend in 2006, with several European Union countries following suit. In 2011, France passed legislation requiring that women comprise at least 40% of boards for listed and non-listed companies within the next six years.  And, just two weeks ago, the European Commission released a proposed new law that, by 2020, 40% of non-executive directors of larger European publicly-listed companies should be women with government-controlled entities required to comply by 2018. The proposed law is temporary and is set to expire in 2028.

A growing number of countries such as Australia have favored incorporating diversity goals in corporate governance codes and listing rules. Most of these initiatives are voluntary with a comply-or-explain requirement.  

U.S. regulators have adopted a more hands-off approach. In 2009, the Securities and Exchange Commission approved rules requiring management of publicly-held companies to disclose their companies' consideration of "diversity" (which the SEC does not define) in the nominating process for board members. In particular, the rule requires a company to disclose: (1) whether diversity is a factor in considering candidates for director nomination, (2) how diversity is considered in that process and (3) how the company assesses the effectiveness of its diversity policy. 

The SEC determined that investors wanted access to this information after 90% of comments submitted in response to the draft rule supported disclosure of information regarding race and gender diversity.  

For the most part, companies state that they do take diversity into consideration when filling board seats. However, these disclosures vary greatly. Some companies issue bland statements generally endorsing diversity, while others specify in great detail how they address board diversity. Unfortunately, in light of the lack of movement in the number of women directors at U.S. public companies, any consideration of board diversity does not appear to be translating into tangible results.