Women on Boards….Not Just the Right Thing, But the Bright Thing

By David A.H. Brown, Debra L. Brown & Vanessa Anastasopoulos

Conference Board of Canada

May 2002

The number of women on boards has increased steadily over the past thirty years. However, since 1998 the numbers have reached a plateau, at low levels. This plateau has occurred despite the fact that most CEOs acknowledge that women are not well represented on their board.

Individually 84% of board members in Canada are male. 2 in 7 Canadian boards are still all-male.

A typical board in Canada consists of 11 people. When searching for the eleventh member of a board in 2001, it is still not unusual for an "older, white man" to be selected. Critics of diversity argue "what's wrong with that"? The answer is, there is nothing inherently wrong with that, it is simply not the point. Diversity is about enriching the leadership palette with different perspectives. Think of the competitive advantage an organization would gain by having leadership team members with five different frames of reference - structural, relational, social, conceptual and systematic, for example - over an organization whose leaders see the world through only one or two of these lenses.

Recent data links corporate performance to the number of women on boards. A November 2001 U.S. study shows that Fortune 500 companies that have the best records for promoting women to senior level positions (including boards), are more profitable than their peers. For example: the twenty-five firms with the best female promotion records post returns on assets 18% higher, and returns on investment 69% higher, than the Fortune 500 median of their industry.

The Conference Board of Canada tracked corporations and found that those with two or more women on their board in 1995 were more likely to be industry leaders in revenues and profit six years later, in 2001.

The Conference Board found striking differences in governance patterns between organizations that have women on their boards and those who do not:

Organizations with 2+ women board members All male boards
Board averages 2.65 of 5 accountability practices Board averages 1.51 of 5 accountability practices
Board reviews 5 or more non-financial performance measures regularly Board reviews 2.5 non-financial performance measures regularly
Board explicitly assumes 94% of responsibilities recommended by TSE Board explicitly assumes 72% of responsibilities recommended by TSE
Gender representation is #2 selection criterion for board Gender representation is #9 selection criterion for board

Source: Conference Board of Canada, May 2002

The main governance areas that are affected by the presence of women are those associated with more active and independent board of directors. The strongest studies have found that these two factors are the elements that contribute to improved organizational performance, whether in sales growth, long-run return or industry leadership.

The research, therefore, provides the following conclusions:

(1) Diversity on boards, here represented by the presence of women on boards, does change the functioning and deliberative style of the board in clear and consistent ways.

(2) "Diversity" - both the inner range of experiences and the outer visible self - is both an enabler and essential precursor of "board unity".

(3) Board unity, activism and independence are core elements of "good governance".

(4) Good governance improves organizational performance over the long term, financially & non-financially.

Diversity enables constructive dissent that leads to board unity and board unity is essential in setting a clear strategic direction and to overseeing risk and resources - in essence, to leadership, stewardship and governance. Empirical data support this conceptual framework. Two dramatic examples are: 74% of boards with three or more women explicitly identify criteria for measuring strategy while only 45% of all male boards do and 94% of boards with 3 or more women explicitly monitor the implementation of corporate strategy whereas only 66% of all male boards do.

The following statistics show that it can be reasonably proposed that having women on boards contributes to a change in leadership style and in how the board deliberates and reaches decisions.

Overall Board Activism All-Male Board 3+ Women on Board
Number of responsibilities taken explicitly by board (out of 19) 13.5 16.5
Approach to governance issues? 76% 91%
Verify integrity of audit information? 74% 91%
Assess management's success in meeting objectives? 74% 86%
Ensures effective communication between corporation & stakeholders? 71% 86%
Ensure conflict of interest guidelines? 68% 94%
Ensure a code of conduct for the corporation? 66% 86%
Monitor implementation of corporate strategy? 66% 94%
Set objectives to measure management performance? 58% 80%
Identify criteria for measuring strategy? 45% 74%

Source: Canadian Directorship Practices 2001 research, The Conference Board of Canada

The biggest difference shown in the above research, is the significant increased use of non-financial performance measures by boards with more women. Boards with more women are also more likely to consider measures of innovation and of social and community responsibility.

This is the most incontrovertible evidence that the presence of women on boards has a noticeable effect on the functioning of the board, and that this effect has to do with broadening the focus of the board - from activities to results, from finances to strategy, from owners to all stakeholders. In essence the board is casting a wider net. The governance factors that have been shown to directly to organizational performance are precisely those shown here: board activism and independence.

The service of women on boards is symbolically important, particularly as the face of culture, society and the workplace change so rapidly, and the service of women on boards also makes a practical difference to how the board functions, the strength of its governance, and how this improves the board's overall effectiveness.

To order "Women on Boards…Not Just the Right Thing, But the Bright Thing" in its entirety, contact the Conference Board of Canada at 1-866-711-2262 or 613-526-3280 and ask for the Publications Department.

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