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Is Legal Action the Answer to Board Gender Inequity?

In late September of 2018, California governor Jerry Brown signed a law requiring publicly traded companies to have at least one woman on their boards of directors. Organizations across the state must comply by the close of 2021 or face hefty fines. Since KQED reports that 25% of the publicly traded companies in California don’t have a single woman on their boards, this law looks like real progress toward abolishing gender inequity in corporate leadership.

But is it?

Advancing women leaders is a huge part of the work I do with the Innovare Group, so I’m strongly in favor of moving ambitious women into power positions. Overall, I’m supportive of this law … but I believe it needs to be rolled out carefully. Otherwise it risks missing the mark and creating more problems than it solves.

One woman is not enough

California’s law is a good start, and it’s driven by solid logic: Women have been trying to bust into the boardroom for decades, and are still excluded. A shift in gender balance is NOT happening organically. If companies are legally bound to be more inclusive, that trend may change, which is good news, to be sure.

However, research shows that it takes three or more women to make an impact on a corporate board. One woman is seen as token, and two women might still be shouted down by their male colleagues. A Wellesley College study found that women directors make three key contributions to boards: they include more stakeholders, they are more persistent in answering difficult questions, and they improve overall board communication. But a single woman sitting on a board stacked with men will struggle to shoulder these intrinsic improvements on her own.

Here’s the real issue at hand in mandating that women serve on corporate boards: Traditionally the women chosen are drawn exclusively from public companies and hold C- or senior-level positions. Current board members believe that only women in executive roles in public companies will be able to relate and handle the “complexities” of public board service. This is flawed in two ways.

  1. It’s an outdated philosophy. Women who are not in public companies can still bring valuable perspectives and experience to corporate boards.
  2. There aren’t that many women in the executive ranks of public companies, so the pool is woefully small. A mandatory quota isn’t addressing the real issue of why the “inventory of women” isn’t available.

If you can’t find three qualified women, the effort may fall flat. So while the 2018 law makes some headway in abolishing gender inequity on corporate boards, it may not have deep or lasting impact.

Let’s talk about WHY women directors matter

Starting in 2008, several progressive European countries began to require boards to include between 30% and 40% women directors or face repercussions. In Belgium, France, and Italy, for instance, firms that fail to comply can be fined, dissolved, or banned from paying existing directors. These countries were not messing around.

But ten years down the road, these mandated quotas haven’t had their intended effect. In no small part because, when they were first introduced, companies were told to comply because it was “the right thing to do.” They got no real context or support for the business case, no bottom line-driven reasoning to welcome more women into their boardrooms. As of 2018, the inclusion quotas haven’t done much to improve corporate performance or help the careers of women lower down in the pecking order.

Although this news is disheartening, other research has proven that a critical mass of women leaders can yield profitable results. The Peterson Institute for International Economics reports that companies with at least 30% female leaders had profit margins that were up to 6 percentage points higher than those of companies with no women in leadership. And that data is drawn from 20,000 publicly traded companies in 91 countries. On top of that, the Leadership Research Institute points out that Fortune 500 firms with solid records of promoting women into high positions were 18 to 69 percent more profitable than the median firms in their industries. Bring in the right women for the right reasons, and increased revenue will follow.

Perhaps if the European nations had been given more information about the business benefits that women board members bring, they would’ve recruited more women, created more balanced and effective boards, and seen more robust results .

Three actions to take to support women leaders

With the shift toward a gig economy, many companies are seeing women leave the workforce because they want to make a bigger impact and feel they can do so more effectively from the outside. This means good companies are losing some of their most talented women at the middle-management level, before they can rise through the ranks. Professional development for women leaders needs to be intentional and begin before women drop out of the workforce so that there is a pipeline for promoting them into higher executive positions. Otherwise the problem of “not enough women on boards” cannot be solved by any law because qualified women will be in short supply. So what steps can we take?

  1. Implement programs focused on developing the competencies that put women on an executive development path before they start dropping out at middle management.
  2. Bring men and women together to talk about differences in how they approach making asks and building networks. Create dialogue that invites understanding and advocacy all round
  3. Make an intentional shift away from the outdated philosophy that only executive women from public companies can serve on corporate boards. Instead, redefine what a successful candidate looks like and set higher expectations with the recruiters (internal or external) to find those people.

Finally, women and men problem-solve in different ways. Boards that want to diversify through gender balance need to push their recruiting firms to present slates of women, relax some of the old outdated rules, and take the time to find the best candidates. Innovare’s Intentional Networking for Strategic Advancement™ workshop is a fantastic tool for ensuring incumbent leaders – both men and women – have the connections they need to recruit diverse boards.

If the California law is to serve the purpose of moving women forward and driving higher profitability, then intention is key to doing it right. If those of us outside of California want to serve that same purpose, we need to support the talented women around us at all levels and at all times.

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