Women at the top: will shareholder pressure speed things up?

There have been a few shareholder revolts over pay recently but we don’t often hear of investors kicking up about diversity. After all, it’s one of those politically correct HR-ish initiatives that no-one really cares about….isn’t it?

Not according to some of the shareholders at Urban Outfitters. They have decided that the company’s board members should look a bit more like the people they are trying to sell to and have put forward a diversity resolution asking for more female and minority directors. According to the Financial Times, the company’s board has urged shareholders to reject the resolution.

The company has urged investors to vote against the diversity proposal, saying it was unnecessary because there was already a woman on the board and because it would be restrictive. It assesses nominees without regard to race, gender or religion, it says.

Hey, we’ve already got a woman on the board. What more do you want?

OK, maybe I’m being facetious. After all, I know nothing about the company or how it operates. That said, though, this statement will do nothing to dispel the suspicion that some organisations appoint female directors simply to tick the diversity box.

As luck would have it, I went to the LSE’s conference on diversity last week. PwC’s Sarah Churchman pointed to some research from McKinsey giving an international comparison of the numbers of women on boards and executive committees.

Female directors

The number of women on boards doesn’t seem to bear much relationship to the number who make it onto the executive committee. Norway, which introduced legislation to force companies to appoint female directors, has a similar proportion of women on its executive committees as the more laissez-faire countries like the UK and US.

Research from Cranfield showed something similar happening over recent years in British companies. In 2009, there was a higher proportion of women on executive teams in FTSE 100 companies than on their boards as a whole. Since then, the  proportion of women on boards has shot up to over a fifth, but the proportion on executive committees has fallen slightly.

Female Directors FTSE100

Last time I looked at this, I found some research showing that there were a lot of companies in Europe with one female board director but far fewer with more than one. It suggested that there had been a rush to appoint a woman to the board but, once the box was ticked, there was no desire to go any further.

I couldn’t find an update of that research but the relationship, or lack of it, between the numbers of executive and non-executive female directors suggests that it might still be the case. As I said at the time, the women are getting the seats but not the power.

Typically, non-executive directors are people who are already among the great and the good. If they haven’t been senior corporate executives themselves, they will have achieved senior status in some other field. Female non-execs with previous board-level experience are still in a minority but that is to be expected, given the relatively small number that make it to senior executive level in the first place.

Screen Shot 2014-05-28 at 06.44.15

But non-executives come to a company ready-made. They are therefore a relatively cheap and quick way of getting women onto a board and getting yourself off the no-women-on-the-board. To get women onto the executive team, on the other hand, the company as to have developed them or to have poached them from someone who has. This is where the problem starts. McKinsey’s calls it the leaky pipeline, with women leaking out at every stage.

Screen Shot 2014-05-28 at 06.56.26

For a number of reasons, organisations are still not good at getting women through their career structures and into senior level roles. This is something that can’t be solved overnight so, when faced with pressure to have more women on the board, it’s no surprise that so many companies look for female non-execs.

All of which suggests that the proposed EU quota on female board membership (if it ever happens) might not do much more than set of another round of frantic non-exec recruitment. Shareholder revolts, on the other hand, might achieve more. The FT reports that a number of large investors are starting to put pressure on companies to increase the number of women in senior positions. It will still be a long haul, and one that will need investment to fix the leaky pipeline. Shareholders, though, are more likely to force that investment than the blunt instrument of quotas. If more investors decide that companies need to be run by people who look more like those in the markets they are serving (a radical idea, I know) who knows where it might lead?

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2 Responses to Women at the top: will shareholder pressure speed things up?

  1. tom schuller says:

    Really important to broaden the focus, exactly as Exhibit 3 does, to look at the pipeline and not just as the top echelon. Indeed some people (e.g. Eagly & Carli, Through the Labyrinth, but also quite a few of my Paula Principle interviewees) say that the ‘glass ceiling’ metaphor is on balance unhelpful: of course it addresses the power issue, but they feel it is irrelevant to them, and shifts attention from the mass of women who want to get on but don’t aspire to those levels.

  2. Dave Timoney says:

    Its no secret that there is a clique of reliable Tory women in the City who have picked up multiple NED roles over the last decade as the diversity checkbox made its appearance. The problem is allowing the ratio of female board members to include non-execs. If the count was based purely on execs, then companies would have an incentive to promote from within, both onto the ExecCom and onto the board.

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