board diversity

Perspectives

An imperative for gender diversity in the boardroom

We aren't there yet

Three of Deloitte's local managing partners, Mark Davidoff (Detroit), Theresa Drew (Charlotte), and Ed Thomas (Seattle), recently discussed corporate governance and offered views on how leaders can make boardroom gender diversity a priority.

Three Deloitte managing partners, Mark Davidoff, Theresa Drew, and Ed Thomas, recently sat down to talk about diversity on corporate boards.

Women represent one key demographic boards can’t afford to exclude. According to Catalyst, firms with women on their boards post 42 percent higher return on sales, 66 percent higher returns on invested capital, and 53 percent higher returns on equity, compared with organizations whose boards are comprised of fewer women.

Boards fulfill a number of responsibilities, from overseeing financial reporting to assessing cyber risk and its impact on an organization. When boardroom discussions include individuals from a range of backgrounds and perspectives, organizations can tap into a diversity of experience to handle competitive, regulatory, and technological concerns. In other words, boards that more closely reflect the makeup of the overall global population yield better results. As reported in the Missing pieces report: The 2016 board diversity census of women and minorities on Fortune 500 boards, the Fortune 100 companies may be leading the way. Currently, 65 percent of Fortune 100 boards have greater than 30 percent board diversity (women and/or minorities), compared to the Fortune 500 where just under 50 percent of companies have greater than 30 percent board diversity.

The business case for diversity is clear. Companies with a significant share of women on their boards outpace those with less gender diversity when you look at areas like share price, or return on equity.

— Mark Davidoff

Our leaders' insights into board diversity

How would you describe women’s representation on boards today?

Theresa Drew (TD): Women make up half the workforce, yet hold only 20 percent of board seats at Fortune 1000 companies. While we’re represented in the overall labor force, women traditionally haven’t been offered the same kind of access to the boardroom. Not only that, companies often fail to offer female employees the type of personal leadership development that’s required to succeed in these roles, so they can fulfill not only their own career goals but also serve their organizations better. It shouldn’t be a surprise that when you put the right people in these roles, and help them use their talents, you get results.

Mark Davidoff (MD): It’s clear that we need to improve. Women hold just 15 percent of board seats in Michigan’s 100 largest companies. Around a third of those companies don’t have a single woman on their board. Those are the large organizations. At smaller firms–under $100 million in revenue–women only make up eight percent of board seats. We haven’t seen progress made in local smaller companies in a decade.

Ed Thomas (ET): You’re right, Mark, we haven’t kept up. In Washington State, women make up 19 percent of board seats on public company corporate boards. That lags behind the national average of 22 percent. And as you said, Theresa, we haven’t offered enough access or leadership development to women for board roles. We also haven’t kept up with changing demographics. We, as business leaders in all parts of the US, are going to have to continue doing more on representation and participation.

What can corporate leaders do to increase women’s participation on boards?

MD: First, they can be intentional about preparing women for board service. At Deloitte, we have a national program for future board members, run by our Center for Board Effectiveness. We’ve held this program in Detroit, helping women executives understand what they can do to prepare for board service. We call it the Board-Ready Women Program. We had our first class last December, where we hosted more than 30 senior female executives who have the experience and interest to be considered for board leadership. The class met with board members and CEOs to look at issues boards believe will have the biggest impact on companies and boardrooms in the future.

TD: That’s a good example of how we can act proactively, but companies can do more. It has to be a priority, and there’s data that tells us why these issues are so critical. In our 2018 Millennial Survey, less than half of the respondents think businesses behave ethically. The perception has deteriorated in just a year. This year, for the first time, we also looked at GenZers; they said business is enhanced when leadership is diverse. So while businesses are making progress as you said, Mark, a lot of organizations still aren’t meeting their full potential on issues like inclusion.

ET: Companies definitely need to find ways to gain more diversity of thought, and we know there are benefits with boardroom gender diversity. We’ve made this a priority in Seattle. Through our OnBoarding Women program, we’re working to reach 30 percent female board participation in the Seattle region by 2020. Think about it: Women influence the overwhelming majority of consumer purchases. If companies don’t have boards that look more like customers, how can they address big issues like global expansion, cyber risk, and overall corporate strategy, things that all affect the customers?

How does boardroom gender diversity translate to results for organizations?

MD: The business case for diversity is clear. Companies with a significant share of women on their boards outpace those with less gender diversity when you look at areas like share price, or return on equity.

ET: There’s the financial metrics, yes, but we’ve also seen how greater diversity in gender, background, and experience makes boards more effective. Boards with a broader look beyond usual solutions. They ask different questions. And they give companies a better shot against challenges like emerging technologies and global competition.

What skills should prospective board members look to build, and how can they put those skills into practice in a boardroom scenario?

TD: I think about what I tell emerging leaders all the time. Don’t limit yourself to what–or who–you know. Take a serious look at your skills, experience, and potential, and be receptive to new opportunities. In practical terms, topics like risk assessment, strategic oversight, and cyber risk are some of the things that will take up boardroom discussions, so those are the areas prospective board members need to know about.

MD: If you’re looking to join a board you can benefit from awareness of an effective committee’s audit, compensation, nominating, and governance–or even the organization’s position on social impact and sustainability. A number of organizations are increasingly focused on their social impact and sustainability practices. So you can see that board participation covers a really broad spectrum of responsibilities.

How else can organizations increase and sustain momentum to ensure women get the opportunity to serve on boards?

ET: Identifying the gaps in gender representation is the first step, but, organizations should also remain focused on making real change so that more women have both exposure and a path to board membership. Success once they get there, that’s the difficult part. Organizations can also consider different ways to connect with and identify talent from different sources as well as reevaluate the gaps in perspective and experience that they might be missing. But inclusion is not just the right thing to do from a human perspective. It’s the right thing to do from a business perspective.

TD: As you said earlier, Mark, the business case is clear. There are so many terrific people, women included, who are ready for board service. We just have to help them find the right boards.

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For more insights on corporate governance, The Center for Board Effectiveness.

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