Mandarin for Business: What impact do women have on company operations?
There’s a remarkable lack of women in corporate boardrooms around the world. The European Union is considering a remedy that would require that 40 percent of a company’s directors be women. This may be a milestone for gender equality, but the question is, will it make any difference in how companies are run?
The number of women directors remains stubbornly low. According to Catalyst, a nonprofit organization devoted to furthering women in business, American companies have the fourth-highest average of women directors in the world. The average board of a Fortune 500 company in the United States is 16 percent women.
Among other Western countries, Catalyst finds that Britain is at 15 percent, Germany is at 11.2 percent, and Japan is near the bottom at less than 1 percent. [China is in the middle with 8.5 percent.]
Nordic countries occupy the top three positions, with Norway being the world leader. Norway’s boards on average are 40.1 percent women.
That Norway is the leader is no coincidence. The country passed a law in 2003 to ensure that 40 percent of directors for all public companies were women. The proposed European Union law is likely to be based on the Norwegian one, and the idea behind both is simple: to take away any excuse for a company to avoid gender equality.
The principles behind these laws are social and economic. The social element is based on the idea that the lack of women on boards is not a result of competency issues, but the clubby nature of these institutions. Lacking the ties to the men already on these boards, women are unjustly denied the opportunity to serve.
But there is also an economic argument that is sometimes made to support the role of women on boards. The claim is that boards with women become better decision makers, increase companies’ profits and lead them to be more humanely run.
These assertions are based on research that in general makes the unsurprising conclusion that men and women are different. Studies have found that women in the boardroom have different values, make decisions differently and engender a more cooperative atmosphere.
There’s even an Israeli study that finds that the more girls in a school class, the better both boys and girls do on test-taking, and another one that finds that orchestras with a greater representation of women have improved organizational performance in the long run, at least as perceived by the players. That women can have a positive effect on men is something that anyone observing a third-grade class could agree on, and perhaps surprisingly, it seems to work in the boardroom.
That men and women are different may be true, but this still doesn’t mean that the more women there are, the better the company’s profits. In two studies of the Norwegian experiment thus far, neither were supportive of the role of women on boards. One study found that Norwegian firms declined in value, while the other found a decrease in profitability.
A few commentators explained the findings by noting that the mass appointment of Norwegian women at once led to younger and more inexperienced boards. The question remains, what happens when there is an equal weighting of women and experience?
The couple dozen general studies on the role of gender in the boardroom are more mixed. They come to differing conclusions, some finding women to be a benefit, others a negative, only creating more uncertainty over the issue.
Because of this, the focus these days is on whether several women make a difference rather than having a token woman director. In this area, there is more support that women do have an effect.
One study found that in German companies with a board composition that was greater than 40 percent women, firm performance was positive.
Another recent study, by Miriam Schwartz-Ziv of Israeli, found that boards with three women directors or greater were “approximately twice as likely both to request further information and to take an initiative” and have better performance.
While these studies are promising for advocates of women on boards, the bottom line is that the effect of women directors has yet to be established. Whether they add value just by their presence is undetermined because the number of women on boards remains low. The true test will be when there are a number of companies with boards comprising 50 percent or more women that can be compared against those with less. We’re not there yet.
The European Union is seeking to fulfill this goal. According to reports, the European Union justice commissioner is keen to introduce its law in the coming months. France and Italy are instituting quotas at the 20 percent level, and India recently required certain public companies to have at least one woman director. But passage of the European Union law is not certain. Britain has already issued a letter protesting the effort, asserting that voluntary measures should be given time.
As for the United States, we’re clearly not there yet. Even talking about gender stereotypes makes many uneasy because it paints women and men with a uniform brush and doesn’t recognize that women and men are different depending on their individual qualities. And there is little likelihood of a quota system being enacted anytime soon.
Gender equality is one goal, but those who think that the number of women directors will reach a critical mass and change the way boards are governed are likely to be disappointed.
Even if it is true that women are different, the way boards are run in the United States may make these differences meaningless.
Boards are inherently behind the curve in decision-making and monitoring the all-powerful chief executive, something we saw in the years leading up to the financial crisis when boards failed to monitor their companies’ risky financial bets.
In addition, American directors largely come from the same class and business background, meaning these people can lull themselves into groupthink where diverse views are muted.
Even if more women directors are added, they are likely to come from this same background and class as their male counterparts. And these dynamics will mean that when women join boards, they’re more likely than not to act just as the men already there.
So if we are really serious about changing boards, we need to not only add new voices to the board, but find a way for the board itself to change.