Wednesday, December 14, 2011

Women Still Underrepresented on Corporate Boards

Women hold roughly 15% of the seats on Fortune 500 corporate boards and the numbers are not growing rapidly, speakers told an audience of Stanford alumnae dedicated to increasing those numbers.

STANFORD GRADUATE SCHOOL OF BUSINESS — Women hold roughly 15% of the seats on Fortune 500 company boards, and some prominent companies, including Facebook and Twitter, have no women board members.

Deborah Rhode Margaret Neale

"If we persist with current rates of change, it would take about 70 years for women to achieve parity" on U.S. corporate boards, law professor Deborah L.  Rhode told a dinner forum. And once they do join a board, they face a series of challenges to having their voices heard added business professor Margaret A. Neale.

Rhode and Neale spoke at a December dinner forum for the Stanford Women on Boards Initiative, an organization of Stanford University alumnae dedicated to increasing numbers through thought leadership and education.

Rhode, the Ernest W. McFarland Professor of Law at Stanford Law School, said common business arguments for diversity include improvements in financial performance, decision making, governance, fairness, and reputation. But she said it's important for advocates not to overstate the case.

For example, some studies — but not all — have found that board diversity is linked to better financial performance. And there is evidence that more diverse boards have better governance. However, those studies do not show causality. It may be that companies with better financial performance are able to recruit more women to their boards, or that well-governed boards are also more committed to diversity.

Still, Rhode said, there are reasons to support diversity apart from the bottom line. "Who is on the board sends an important message to stakeholders about the organization's fundamental values," she said.

One of the main obstacles is the lack of women in the pipeline. For example, more than half of the men who serve on boards of Fortune 500 companies are CEOs or former CEOs, another area in which women are underrepresented. Although term limits and requirements for director independence may open up more spots for women, current board members are still likely to prefer people like them.

"We really feel much more comfortable and want to spend more time with folks who are like us," said Neale, the John G. McCoy-Banc One Corporation Professor of Organizations and Dispute Resolution at the Stanford Graduate School of Business.

Women need "critical mass" on a board to avoid being viewed as outsiders, or token members who are there simply to represent women's views. But getting there is a challenge.

Individuals who want to change this can help women they know enhance their qualifications, Rhode said, as well as with networking and mentoring. She also suggested that women directors be persistent in raising gender issues in public and private, be "relentlessly pleasant," and be ready to suggest specific candidates for open positions.

Boards looking to increase their female membership can set goals for including women, Rhode said. Structured searches and professional consultants may also help, as can reducing the CEO's role in the selection process.

Once women are on boards, they face a new set of challenges, including "getting our voices heard," Neale said.

Neale discussed the role of healthy conflict in board discussions, and how having people with varied perspectives can be an advantage.

Groups of similar people don't face barriers such as differences in language or perspective, Neale said, so their decision making can be very efficient. But "there is a real potential for losing the capacity to learn," Neale said. "We go on our way thinking that yes, we have the right answer, because no one's disagreeing."

Some groups will suppress their differences in order to avoid conflict. "They fear that conflict is incompatible with effective performance," Neale said. "People who disagree say, 'For the sake of the board, I'm going to keep quiet.'"

Neale outlined different types of conflict: task, relationship, process, and status. Task conflict is actually positive, she said, as long as it is resolved and does not become relationship conflict. To make boards more effective, leaders need to model conflict resolution and also reward people for engaging in it. "Rather than suppressing our differences, how can we explore those differences in perspective?" Neale said.

Several factors make team members likely to withhold their perspective: They may fear exclusion, or they may be uncertain about the group's expectations. Or the culture of the group may discourage conflict, even task conflict, among members.

There are also circumstances that make it easier for group members to share information: for example, when there is a "right" answer, when experts are known, and when the information is demonstrable, not just an opinion.

Neale also explained research into how decision-making groups react to the addition of newcomers. In an experiment, new members were introduced into groups that were trying to solve a problem. Some of the newcomers were socially similar to the existing group members, and some were not. The dissimilar newcomers spoke more and were listened to more.

In addition, the groups with the dissimilar newcomers were more likely to correctly solve their problem. However, the groups with the similar newcomers rated their groups' performance more highly. Neale said that is likely because those groups had the least conflict — which created the perception that they had performed better even when they hadn't.

"Conflict is critical for problem solving," Neale said.

The two-year-old Stanford Women on Boards Initiative is a joint effort of the Women's Initiative Network of the Stanford Graduate School of Business and the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford. It is open to women graduates of all Stanford University schools and departments and among other resources offers a boards registry and clearinghouse where director searches and Stanford women candidates can be matched.