Studies consistently show that gender balance in the boardroom is better for business, with increased profits, fewer scandals, and better returns on capital. Despite this, women make up an estimated 13 per cent of the boards of Irish plcs. Is it time to introduce a mandatory gender quota?
No, says Aileen O'Toole. The digital strategist and Sunday Business Post co-founder sits on the board of the Road Safety Authority and Business in the Community. A chartered director, she previously sat on the board of Chambers Ireland and of Ash Ireland, the anti-smoking NGO.
“My preference would be for gender targets rather than quotas,” she says. “I believe that boards should publish their targets and report on progress in achieving them. I am less in favour of mandatory quotas.”
The adoption of voluntary gender targets is the approach the 30% Club is adopting. Established in the UK in 2010 and now active in a number of countries, including Ireland, it campaigns for greater representation of women on the boards of public companies, with a target of a minimum of 30 per cent.
The slow pace of progress (from women comprising 9 per cent of boards in 2013 to 18 per cent today) may be changing O’Toole’s views, however. “I used to be vehemently opposed to them, on the basis that females could be perceived to be token appointees who have been appointed to boards not necessarily on their own merits. Now I’m more sympathetic to the arguments put forward by those who favour quotas. They say that non-binding approaches such as targets are not delivering change quickly enough and that a ‘once off’ quota – for, say, five years – would make a lasting difference, as organisations are likely to continue with more diverse boards after the quota expires.”
Part of the problem may be a sense that there aren’t sufficient female candidates available to appoint, “which is completely erroneous”, she says.
“Another historical issue has been the informal way new board members have been appointed, usually from the networks of exiting board members. That is changing, though, with an increasing number of boards going through an independent selection process, sometimes facilitated by a headhunter.”
But there is also another issue, and one that doesn’t get as much attention as it deserves, O’Toole reckons. “Certain skills are in demand on boards, such as finance and legal. Other skills are not, including marketing, communications and HR, where there are high numbers of experienced – and I would argue competent – females. To achieve real diversity, I believe that boards should consider candidates with those disciplines. This would open up a wider pool of experienced female candidates, make the targets more achievable and also enrich the board’s collective expertise.”
There is good reason for getting this facet of corporate governance right. Boards should set internal gender targets “not because it is topical or politically correct, but because it actually makes business sense”, says O’Toole. “There is a wealth of research that confirms that businesses that have greater gender diversity in senior management and on boards are higher performers than those who don’t.”
The Institute of Directors (IoD) provides professional training for directors. A survey of its members found a clear majority are in favour of targets over quota. Leaving aside the fact that 26 per cent of its members are women and 74 per cent men, quotas are considered a "blunt instrument" by many of both genders, points out Maura Quinn, the IoD's chief executive.
“The concern with quotas would be that women might be appointed to boards to make up numbers, and as many women have this view as women who support quotas. It is, in fact, a very fractious subject within women, with some feeling that change is taking too long,” says Quinn.
“They feel we need to do something radical and that a quota is the way to do that. But I don’t think so. We see change is happening organically. At the IoD we can see that the number of women joining is growing. Women see that there is greater awareness of the need for greater diversity on boards. The percentage of women who support quotas is greater than the percentage of men, but even within women, a majority favour targets over quotas. It has to be about bringing the right skills to the table.”
The IoD launched its chartered directors programme in 2008, offering the most senior professional qualification a director can have. Since then, 700 people have come through it, with about 30 per cent of them, and growing, being women. “Women are getting ready,” says Quinn.
Management consultant Anne-Marie Taylor has been helping them get ready for years. A member of the steering committee of the 30% Club Ireland, she is a co-founder of the Board Diversity Initiative, which raises the profile of women who are “board ready”. Taylor is herself a member of the board of the Public Appointments Service.
"I'm not in favour of quotas but I am in favour of a strong and credible intervention such as the intervention in the UK which resulted from the Lord Davies review in 2011. This review set a target of a minimum of 25 per cent representation of women on FTSE 100 companies by 2015," says Taylor.
“A number of realistic measures were put in place to monitor progress and to ensure the targets were met. In the background, there was the option of more prescriptive measures, such as quotas, if the targets failed to be met. These kinds of initiatives provide the kick-start needed to reach a critical mass of women on boards, which should then be self-sustaining. Some kind of catalyst is required,” she says.
“I always thought it was just a matter of time. In the early ’90s, Network, the Organisation for Women in Business, did a study on women on boards and established that female representation was 2 per cent. Not great, but we genuinely believed we were on the cusp of a breakthrough. We were confident that the women who had come after the marriage bar was lifted were working their way through the pipeline, and it was just a matter of rising through the ranks before they too would be taking their place at the boardroom table alongside their male counterparts. Roll on 25 years and what’s happened? The percentage of women on plc boards in Ireland is now 13 per cent, an increase of 11 percentage points in a quarter century. At this rate, our grandchildren will barely see 30 per cent representation, never mind 50 per cent.”
Part of the problem is unconscious bias, “we all have a tendency to surround ourselves with people in our own likeness”, she says.
There is also the fact that boards seek out directors who have been a CEO or have had significant revenue-generating experience, whereas women at senior level in organisations tend to be in ‘support’ roles like HR and marketing.
It’s interesting to compare what happened in UK boardrooms in the past few years where a seismic change did occur, Taylor says. In 2010, the percentage of women on plc boards in Ireland was about 9 per cent, while on the UK FTSE 100 companies the percentage was 12.5 per cent. By 2016, the figure in the UK had increased to 26 per cent; in the same period in Ireland it increased only to 13 per cent.
“The difference was the government-backed Lord Davies Women on Boards review which recommended targets, which if not achieved by 2015, would have led to more prescriptive measures being introduced.”
State boards show much better gender balance at 38 per cent but “when you dig a little deeper you find that the women tend to be concentrated on the non-commercial boards. On commercial State boards, only 27 per cent are women,” she says.
And if you think the attention currently being given to the benefits of diverse boards means new board appointments are heavily weighted in favour of female appointments, you are sorely mistaken. “In 2016, out of 35 new board appointments to listed companies on the main securities market, only six were female. This is barely above the replacement rate,” says Taylor.
Quotas may not be the solution but if the UK experience is anything to go by, the very real threat of their imposition may offer a way forward.
What the research says
Catalyst’s research series, The Bottom Line, found companies that had more women on boards had better financial results than their less well-endowed counterparts. Companies with the most women board directors had 16 per cent higher return on sales than those with the least, and 26 per cent higher return on invested capital.
MSCI, a US provider of investment decision tools, found companies with “strong female leadership”, primarily measured by women on boards, were correlated with higher return on equity than companies without (10.1 per cent vs 7.4 per cent), as well as a superior price-to-book ratio (1.76 vs 1.56). MSCI also found companies with fewer women on boards had more governance-related controversies than average.
A 2016 report from Credit Suisse showed companies with at least one woman on their board outperform other companies, with a compound annual growth rate 3.5 per cent better than companies with all-male boards.