March 20, 2020
In this time of pandemic and economic chaos, it is difficult for any of us to think about much else. But the pandemic will end and the economy will stabilize, and it’s our responsibility to make sure that when they do, we haven’t lost ground in the fight to eliminate the bias-driven obstacles women face in their careers. To that end, I am going to continue to write about women, work and how things can be made fairer for them. And when it is time for you again to fully engage at your workplaces, I hope you will double your efforts to make those workplaces more welcoming for women with ambitious career goals.
Women are not represented on corporate boards to anywhere near the extent they should. They make up only 20 percent of the directors of the corporations in the Russell 3000 Index encompassing the vast majority of all publicly traded companies in the United States. Worse, 20 percent of the companies in the Russell 3000 index have no women directors at all. In response to the low proportion of women directors, there have been a variety of recommendations and initiatives.
Writing in the Harvard Business Review , Nilofer Merchant argues, “In order for [women’s] ideas to be heard, valued, and therefore acted upon, women must be truly welcomed by the board’s selection process not forced upon it. This may mean that changing the makeup of boards takes longer. But it will result in real change faster.”
In keeping with Merchant’s view that women need to be “welcomed” onto boards, a group of prominent corporations are urging other corporations to join with them in the 30% Club by committing to have at least 30% women on their boards. A similar initiative is the Every Other One pledge, promoted by the Committee for Economic Development of The Conference Board, whereby corporations agree to fill every other board seat vacated by a retiring board member with a woman.
Disclosure of Gender Makeup
In addition to these voluntary initiatives, New York and Illinois now require corporations subject to their jurisdiction to disclose information about the gender makeup of their boards. As Governor Andrew Cuomo stated in signing the New York law, the information obtained from the disclosures “will help guide the development of new policies to ensure more women have a seat at the table.”
There have also been private initiatives to pressure corporations to increase the number of women on their boards. Black Rock, the world’s largest money manager, is requiring companies in its portfolio to have at least two female directors. State Street Global Advisers has announced it will vote against the reelection of directors serving on nominating committees of companies without women directors. And Goldman Sachs has stated it will no longer take a company public unless it has at least one woman or minority person on its board, with this requirement increasing to two in 2021.
The California Mandate
Of all of the efforts to pressure corporations to add women to their boards, the most significant is California’s mandate that corporations with their principal office in the state must have at least one woman on their boards of directors by December 31, 2019, and at least three by December 31, 2021 if they have six or more directors. California is the first and only state to impose such a mandatory requirement.
Because of the California law, a substantial number of corporations have added women directors. Indeed, two-thirds of the 75 corporations subject to the mandate that did not have a female board member had added at least one woman by the middle of 2019. The law, however, faces serious opposition. More than 30 California business groups, including the California Chamber of Commerce, oppose it, and the law has been challenged in federal court on the ground that it violates the equal protection clause of the U.S. Constitution by discriminating on the basis of sex. In signing the law, then Governor Jerry Brown acknowledged that the law’s “potential flaws” might prove fatal to its ultimate implementation.
The Structural Problem
But why is there a need for any action at all? Given that we are so often told that corporations with diverse boards have better bottom lines, why aren’t corporations rushing to add women directors? The reason is structural: There just aren’t very many board openings.
When we look at Fortune 500 companies, in 2018 the percentage of newly elected directors who are women was 40 percent; and women are projected to constitute 50 percent of newly elected Fortune 500 board members by 2023.
As encouraging as this is, among all Russell 3000 companies, 50 percent did not add a new board member or replace an existing member in 2018, and that year was not an aberration.
The low turnover of board seats is due to two factors. First, the average tenure for board members is over 10 years, and about 25 percent of directors do not step down until after more than 15 years of service. Second, 43 percent of corporations have staggered boards, meaning that they elect only one class of directors each year, not all of their directors.
The bottom line is that none of the initiatives—Black Rock’s investment policy, Goldman Sachs’ underwriting policy, Illinois’ and New York’s disclosure requirement, nor California’s mandate—are likely to move us significantly closer to gender parity on corporate boards in the near future. Even if every one of the 20 percent of companies that does not now have a woman director were immediately to add one, women would still make up less than 25 percent of Russell 3000 directors.
These initiatives discussed are important, but unless action is taken to force faster directorship turnover—a step that would be fiercely resisted by the corporate community—we are unlikely to see rapid progress toward gender parity. Therefore, it appears that our best hope for real progress are the voluntary initiatives like the 30% Club whereby corporations themselves actively work to change the composition their boards.