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Women on Boards Improve a Bank's Performance

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Evidence is piling up that companies with women on their boards outperform those without. The Credit Suisse Research Institute, McKinsey & Company and Catalyst have all released recent studies indicating return on sales, return on equity and return on invested capital are higher when gender diversity exists on the board of directors and/or in senior management.

Women bring a different perspective into the boardroom. In the U.S., women are responsible for 80% of decisions related to consumer purchases, so they are often considered more closely aligned with the customer's view. Therefore, their perspective often drives development of product and services. It's also believed that women bring a more balanced approach in the boardroom in matters of risk, governance and corporate long-term objectives.

A national initiative called 2020 Women on Boards is actively pursuing the goal of increasing to 20% the number of women on boards by 2020. I attended their second annual National Conversation on Board Diversity last week in Los Angeles. The event was held in 20 cities across the U.S., Canada and Europe on Tuesday, November 12, 2013 to raise awareness and unite companies in a call for action.

The good news announced at the event was that the percentage of women on boards is increasing. The percentage of Fortune 1000 companies that now have at least one woman on the board of directors is up to 16.6%. The number has increased one percentage point per year since 2011. While this is not dramatic improvement, it is trending in the right direction and indicates that the goal will be reached – if not exceeded – in the next seven years.

It was heartening to see that the financial services sector has also made progress in boardroom gender diversity. Financial Services, at 18.1%, is among the leading sectors in this area. Other sectors with a greater percentage of women on the board are Utilities (19.9%), Real Estate (19.4%) and Consumer Defensive, a catchall for food, beverages, household products and several other categories (19%).

According to Susan Adams, professor of management and senior director for the Center for Women & Business at Bentley University, "the Financial, Utilities, and Real Estate sectors now look more comparable to the more gender-equal and female dominated sectors in the percent of women on boards, a hopeful sign that even in male-dominated sectors, things are beginning to change."

Banks with more than 25% female board members include First Republic Bank, KeyCorp, Wells Fargo, Bank of Marin and Bank of America.

Women working in investment banking, private banking and private equity fields have a pathway into board seats by virtue of their career experience.  "Along with CFOs, they have often been the first finance women experts chosen for corporate boards," writes Betsy Berkhemer-Credaire in her 2013 book, "The Board Game: How Smart Women Become Corporate Directors".

Troubling, however, are statistics comparing the U.S. with other countries. In a global economy, the U.S. is far from being a leader in the area of gender diversity on boards. Responding to the reports of a correlation between performance results and gender diversity, several countries implemented quotas for the number of women on company boards. Norway, for example, installed quotas in 2003 and the percentage of women on their boards jumped from 7% to 41% by 2013, a significant increase. Other countries have established suggested targets.

In the U.S., we are generally using the media, education and awareness-raising campaigns to influence and encourage chairmen and CEOs to add women to their boards. California, however, is being more aggressive. The State Assembly passed a resolution urging all publicly held companies to add women to their boards over the next three years. This makes California the first state in the U.S. to take a stand on gender diversity in the boardroom.

I'm not advocating for mandates. The financial services industry has enough government guidance to absorb these days. But if the research is accurate and companies with more women on their boards do outperform those without, the U.S. could be at a competitive disadvantage by being less proactive in the area of gender diversity on boards. And that concerns me.

The 2020 Women on Boards event last week was an eye-opening experience and I'm sure it will energize the national conversation. We'll need to engage CEOs everywhere in that conversation to achieve meaningful progress.

Noma Bruton is the chief human resources officer of Pacific Mercantile Bank in Costa Mesa, Calif. She has over 20 years of banking experience and writes the HR Sagacity: Insights in Banking & Finance blog.

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Comments (3)
Thank you Noma for your great article. I am co-founder and ED of 2020 Women on Boards. In addition to the event you attended, we had 19 more across the US, with over 1300 people attending the National Conversation on Board Diversity. We are gaining ground.
Posted by Malli | Wednesday, November 20 2013 at 1:30PM ET
It should be the responsibility of the board of directors, not the CEO, to identify and recruit new directors. Since the primary responsibility of the board is to supervise the CEO, delegating board recruiting to the CEO represents a glaring conflict of interest. (The same conflict that exists when the CEO also serves as board chairman.)
Posted by MrPotter | Wednesday, November 20 2013 at 3:12PM ET
Good article! I have been involved for many years on the topic of board diversity and have had good success in persuading companies (not just banks) to improve diversity on their board. I does take time and patience.
And diversity at the top management level is also a challenge at many companies especially in the operating areas. Usually companies add diversity in the Human Resources, Finance and Legal areas first. Many people might be surprised to learn of some well know companies that practiced gender discrimination until investors engaged them. Banks have no excuses why they do not have strong representation in this area.
Posted by frankarauscher | Wednesday, November 20 2013 at 3:33PM ET
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