Women in the boardroom: a business imperative

Citation

Daily, C.M. and Dalton, D.R. (2003), "Women in the boardroom: a business imperative", Journal of Business Strategy, Vol. 24 No. 5. https://doi.org/10.1108/jbs.2003.28824eaf.002

Women in the boardroom: a business imperative

Catherine M. Dailyis the David H. Jacobs Chair of Strategic Management, Kelley School of Business, Indiana University, cdaily@indiana.edu

Dan R. Dalton is Dean and Harold A. Poling Chair of Strategic Management, Kelley School of Business, Indiana University, dalton@indiana.edu

The US Supreme Court recently ruled on two separate but related cases addressing diversity and affirmative action. In one case the court ruled 5-4 that race can be used as a criterion in making university admission decisions (Grutter v. Bollinger). This applied to the University of Michigan's law school policy, which favors minority applicants in the admissions process. In a second ruling, the court voted 6-3 that undergraduate admissions policies cannot include additional points in the ratings system for Blacks, Hispanics, and Native Americans (Gratz v. Bollinger). These two landmark decisions have refocused attention on diversity goals and practices, including those that apply to corporate boardrooms and the continued dearth of women on corporate boards.

Corporate officers and directors are usually sensitive to the rhetoric of boardroom diversity, but they stop at lip service. A number of corporations, however, have developed strategies for attracting and retaining female directors, but these initiatives are not without critics. Advocates of the status quo defend the relative lack of diversity on corporate boards as a function of too few women having the requisite qualities and experiences. Careful consideration of these criteria, however, reveals that male board members often fail to meet these criteria as well. Placing unduly restrictive criteria on the search for female board members becomes a self-fulfilling prophecy, a hunt for the mythical unicorn.

Unlike the unicorn, the female director does exist, though she is a relatively rare species. Women are now represented on three-fourths of Fortune 1,000 boards, but they constitute less than 11 percent of all Fortune 1,000 directorships. This latter statistic reflects a pace of progress more reminiscent of the turtle than the hare.

The representation of women on corporate boards shows little variation no matter where one searches. In Australia, Canada, Japan, Norway, South Africa, Spain, and the UK, for example, one half or fewer large corporations have even one female director, with overall female board representation under the 11 percent found in US firms. The low representation of women on Norwegian boards has prompted a controversial piece of pending legislation that would mandate at least 40 percent representation by 2005.

Should the gender diversification of corporate boards be a business imperative? We argue in the affirmative for three key reasons.

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  Resources. Given the complexity of the business environment and the consumer market, organizations need to leverage all available resources to compete effectively. Why would an organization exclude, intentionally or otherwise, half of the workforce from consideration for board positions? As evidence that female directors' skills and expertise are valued, they are as likely to serve on high profile board committees such as the audit and compensation committees as are their male colleagues. Also, the majority of female directors have corporate backgrounds, enabling them to contribute their business expertise.

  Do women add unique value to the boardroom in other ways? Absolutely. They provide unique perspectives, experiences, and work styles as compared to their male counterparts. The addition of women to the boardroom, for example, can greatly enhance the board's deliberations. Women's communication styles tend to be more participative and process-oriented. These stylistic differences may enhance directors' decision-making processes by encouraging the board to consider a wider range of strategic options. Women's different experiences and perspectives may also help the board consider a wider variety of customer needs and interests. Just over half of the US population is female and women account for the majority of US consumer purchases. Who better, then, than a female board member to offer insights on the female customer?

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  Signaling. The addition of women to the board of directors can send a powerful signal within the organization. Women in strategic decision-making positions communicate that an organization is committed to the advancement of women at all levels. In fact, there is a direct relationship between the presence of women on a firm's board of directors and the number of women in key executive positions. An additional benefit to having women in high profile positions is their ability to serve as role models for and mentor other women.

  The inclusion of women on the board of directors is also likely to be well received by external constituents such as customers and investors. With corporate and board ratings systems incorporating the representation of women on boards in their criteria, the absence of female directors may result in a loss of support from key constituents. An increasing number of investors (individuals and funds) now include board diversity as a criterion for investing. Additionally, an absence of boardroom diversity may result in negative publicity for the organization.

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  The bottom line. In addition to the resources provided by female board members, and the signaling power of the initiative, including women and ethnic minorities on corporate boards is positively associated with stock returns. Given the benefits to female directors that we have noted, should we be surprised by this finding? The bottom line on female directors is that they are good for the bottom line!

As with virtually any valuable resource, the recruitment and retention of female directors will not spontaneously take care of itself. Those who believe that qualified women do not exist can certainly set the bar at a level that ensures artificial obstacles. Those sincerely interested in recruiting female directors, however, can recruit high quality, high performing individuals by simply making an effort. This may require boards, CEOs, and nominating committees to expand their usual search process. Professional director search services can certainly be employed to great effect and informal networking can be invaluable in finding the right director nominee. Alumni networks and professional associations and even the popular press can also be excellent sources for identifying high profile, professional women. The key is to make diversity happen rather than wishing for boardroom diversity.

What is our hope for the future? We look forward, with great anticipation, to the day when columns such as this are no longer relevant, when discussions about boardroom diversity are a moot point because boardroom diversity is a reality, as opposed to a goal. Women in the boardroom … it just makes good business sense.