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No Women At The Top? How It Affects Business

Diversity doesn't just sound "good;" it turns out to have some serious bottom-line repercussions.
COLLABORATORS Pamela Kruger
No Women At The Top? How It Affects Business
photo by ShellVacationsHospitality

When Facebook filed its IPO, the criticism was swift and fierce. Why does the social media networking behemoth have no women on its board?  Critics noted that most of the company’s 800 million users are female, and not having a woman was, in the words of The Daily Beast, “an odd disconnect for a company that claims to be forward-looking.”

To be sure, Facebook is not alone. Twenty-nine companies in the S&P 500, including Discovery Communications (owner of Oprah Winfrey’s network),  have no women on the board or among the five highest-paid executives. A 2010 study by McKinsey of 441 publicly-traded companies around the world found that only 15% of US corporate boards have at least one woman member.

And yet, research from organizations ranging from McKinsey to Catalyst have argued that there is a compelling reason to be made for having women in the C-suite and on the board: It’s good for business.

The latest to make this case is a study by Harvey Wagner, a professor at University of North Carolina at Chapel Hill’s Kenan-Flager Business School. Conducted with the diversity data provided, in part, by Catalyst, Wagner examined 524 US public companies, analyzing the financial performance of companies and the presence of women in the C-Suite. What he found was companies with the most female C-Suite execs performed better than those with the least.

Take a look:

McKinsey’s study also found a similar correlation. Companies that had the highest share of women on their executive committees had an average return on equity of 22 percent, whereas companies with no women on executive committees had a return on equity of 15%.

The Move to Regulate Diversity

In part because of such statistics, some European nations have adopted quotas to increase the presence of women at the top of corporations. In 2003, Norway passed a law requiring all publicly-listed companies to reserve 40% of the seats on their boards for women by 2008. Spain and France both followed. German, Italy and Netherlands are considering similar measures.  In the US, the SEC now requires companies to disclose “whether, and if so how, a nominating committee considers diversity in identifying nominees for director.” However, that measure has had little effect on improving US boards’ diversity, according to GMI Ratings, which tracks corporate governance issues, which finds the percentage of female directors remains little more than 12 percent.

And given US business leaders’ widespread opposition to quotas, regulators here don’t appear to be any mood to follow European’s lead. In fact, critics note that a study by University of Michigan finance professors found that post-quota, Norwegian “firms experienced drops in operating performance and higher costs.” The theory is that these poor results were due to the fact that companies put less experienced women on the board, although some dispute that interpretation.

So, What’s the Answer?

Women business leaders often debate and discuss this issue.  Perhaps the most influential was a TED talk in which a woman COO exhorted women to demand their spot at the table. That video went viral last year, as women around the world praised it for this inspiring advice to women professionals:

  • Don’t hide. Women need to place themselves in visible areas where they’ll be seen and participate in the action.
  • Share the work at home. The so-called second shift is real. Women still do twice as much housework and three times as much childcare as men. “We have to make it as important a job to work inside the home–for both geneders–if we’re going to even things out and get women to stay in the workforce.”
  • Don’t leave before you leave. “Keep your foot on the gas pedal until the very day you need to leave to take care of a child, and then make your decision. Don’t make decisions too far in advance.

Ironically, the talk was by Sheryl Sandberg of Facebook, the same company with zero women on its board. You can watch that here.

THE PLUS

Which companies have no women on their boards? GMI Ratings, which monitors corporate governance issues, wrote a much-discussed article , on this topic . Deloitte interviewed 15 women CFOs and financial executive recruiters to uncover what what it takes for women to reach those top positions , , and Deloitte identified five traits that were essential: curiosity, courage, perseverance, self-assurance and ethical responsibility. Hmmm. Sounds like the same characteristics men need.

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