When thinking about boardroom succession planning, nominating committees might want to review the talent acquisition theory developed by the Oakland A's in 2002 and showcased in the book (and movie) Moneyball to create a winning team. Based upon player statistics that other teams overlooked, A's Manager Billy Beane, backed by the research of a young Yale-educated economist in his first position in baseball, pursued and drafted a lot of undervalued players that some of the more high-profile teams thought didn't look the part and wouldn't amount to much. In many cases, board-ready women today may be the overlooked candidates that Beane would have recruited.
Who is the best candidate for your next board opening?
Thinking of candidates in the context of “board team” needs is essential, so selecting the “most” qualified person may not be a straightforward decision. Many corporate boards — including 36% of the largest companies worldwide that have no women on their board, according to a Thomson Reuters 2014 report — are apparently ignoring the statistics that show gender diverse boards outperform those with limited diversity.
There are more men named John, Robert, James and William than there are total women on corporate boards at U.S. companies, according to a report by EY issued this year.
The Key Research
As part of my organization's mission, we help boards understand the research and stats about how gender diversity has benefited other companies, and we provide them with board-ready candidates who are women. So, please read on if you'd like to review highlights of the research that shows why diversity in your boardroom should be an essential part of your director recruitment strategy:
• McKinsey & Company's “Diversity Matters” report issued in 2015 states, “Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.” McKinsey has done a number of other studies on the value of gender diversity in leadership in their “Women Matter” series from 2007-2014.
• Credit Suisse's “Gender Diversity and Corporate Performance” report in 2013 found that over a six-year study of 2,360 companies globally, those with one or more women on the board delivered higher average ROE, lower gearing, better average growth and higher price/book value multiples.
• A Catalyst study in 2011 reported the financial performance at Fortune 500 companies with three or more women on their board (in at least four of five years) significantly outperformed those with no representation of women in the same time frame.
• An analysis of a large sample of acquisitions of S&P 1500 companies between 1997 and 2009, by the University of British Columbia Business School, shows that women on corporate boards help companies strike better M&A deals. The report found that the cost of a successful acquisition is reduced by 15.4% with each female director added on a board. It also revealed that each additional female director reduces the number of a company's attempted takeover bids by 7.6%.
Other Big Benefits
Benefits other than financial performance also provide solid reasons for increasing gender diversity:
• Companies that invest in gender diversity at high levels are less likely to fall prey to fraud, corruption, and other scandalous episodes and fewer governance-related controversies, according to a 2015 analysis by MSCI Inc.
• Women and men board members approach some key governance issues differently. Fortune magazine, reporting on a 2014 PwC study of companies with $1 billion-plus in revenues across almost two dozen industries, found that women directors:
— are more likely than their male peers to say that getting rid of directors who aren't pulling their weight should be easier than it is now;
— would like additional board focus on technology risks (including cyber security);
— expect more thorough briefings from management;
— are more than twice as likely as their male peers to say they're “dissatisfied” with the explanations they do get;
— want to know more about customer and employee satisfaction;
— want to adopt more of the policies viewed as “leading” by activist shareholders and others, such as having mandatory board retirement policies in place, raising the minimum amount of stock directors must own, and limiting board members' terms. (See .)
• In 2015, Aaron A. Dhir, an associate professor at York University's Osgoode Hall Law School wrote “Challenging Boardroom Homogeneity: Corporate Law, Governance and Diversity.” He found a number of positive results of gender-based diversity for boardroom work, including: enhanced dialogue; better decision making (especially around the value of dissent); more effective risk mitigation and crisis management; higher quality monitoring of and guidance to management; positive changes to the boardroom environment and culture; more orderly and systematic board work.
• According to a 2012 survey done through Harvard Business School, 45% of men on boards believe that the low percentage of women board members is because there aren't enough qualified, board-ready women candidates. The study also found that women had to be more qualified than men to be considered for directorships.
Drafting Criteria Need a Rethink
If board members are still looking at the primary qualifications of yesteryear, including the much-in-demand title of CEO, CFO, chair, or current director of a pubic company, perhaps like Billy Beane, they need to re-evaluate their drafting criteria to reflect the more diverse needs of most boards today. I can assure you that in our own database, and those of other pro-diversity board organizations, the quality of women candidates is exceptional.
Why does gender diversity produce a benefit? It is the difference of perspectives, thinking and experience of women and men that helps companies build better teams, better products and more comprehensive view of how customers will view the company and products. Getting more women involved reduces groupthink.
An all-woman board would also be less likely to have the benefit of different viewpoints and thinking as a board with representation of both men and women. Although generalizing about women and men's approaches can be fraught with stereotyping, research does confirm that women and men's brains are physiologically different, which does account for a natural tendency for decision making using different approaches. Scientists have discovered approximately 100 gender differences in the brain.
Picking the right player for the team's needs is critical in board selection. Moneyball was a wonderful example, in my view, of how to take advantage of known statistics to pick players that will truly make a difference. In the case of selection of board candidates, I hope that these research reports will help you in your director recruitment decision-making process with a realization that gender inclusion itself may be your ace in the hole for a more productive board.