Enthusiasm for appointing women to boards is tapering off, according to Heidrick & Struggles latest report. Women represent a smaller proportion of new board members US firms this year, compared to a few years ago, according to a Bloomberg analysis. Boards are also appointing noticeably fewer black women as directors.
As a result, progress in women’s representation on boards has stalled, hovering around 30% for a few years now.
Easy fixes, like expanding a board’s size to accommodate more women or fast-tracking a few women into high visibility roles may have helped boost the numbers in the short term. But they could also be stifling progress and feeding opposition.
Efforts to diversify boards are also increasingly under attack by groups who claim that DEI investments are distractions that hurt a firm’s bottom line. Pushing back against these efforts, President Biden just vetoed legislation by Congress that would prevent pension fund managers from considering factors like a firm’s board diversity in their investment decisions.
How To Sustain Progress?
Improve Board Refreshment Practices
Boards give themselves too few opportunities to refresh their skills and improve diversity. They tend to replace their directors infrequently. Only about 10% of directors appointed each year are new directors, according to a recent Conference Board research project.
Some boards respond to the pressure to have more women by increasing the size of the board. McDonalds, in 2022, had 2 women on a board of 11 directors. It added 3 seats to the board, filling 2 of them with women, according to a report by Observer, a New York digital media company.
But adding seats to accommodate pressures for diversity can have unintended consequences. When boards are larger, communication and collaboration can be more challenging. It also does not serve the women appointees, who may be relegated to less influential roles if they are seen as appointed primarily to satisfy diversity requirements. Directors are also increasingly saying that: “board diversity results in the nomination of additional unneeded candidates,” a PWC survey found.
There are better ways to diversify a board while also attending to the board’s evolving knowledge and expertise needs. Boards that continuously evaluate their needs against the qualities their directors bring to the table have more opportunities to enhance their demographic diversity and adjust their collective board capabilities, without unnecessarily increasing the board’s size.
Level The Playing Field
Firms claim there are not enough qualified women for board roles but haven’t sufficiently leveled the path to C-suite roles, especially for women of color.
Executive experience is a prerequisite for many board roles. More and more board seats are going to directors with CEO or CFO experience, the Heidrick & Struggles report shows. However, only 26% of C-suite executives are women, according to a 2022 McKinsey & Company report. Men are promoted more quickly at all rungs of the corporate ladder. They benefit from receiving more of the assignments, mentoring, and sponsorship that lead to promotions.
To accelerate women’s advancement and avoid public scrutiny, some firms elevate women to executive positions faster than men with similar relevant attributes until they have about as many women in those roles as do their competitors. This is according to a study of promotions at Fortune 100 companies, published by professors at IE business school (Madrid) and University of Pennsylvania. Once firms have placed enough women into executive roles to escape public scrutiny, their acceleration efforts stop.
Accelerating the promotion of a few women to executive roles is a temporary solution to gender disparity in the C-Suite. A more sustainable approach should address structural causes of the gender imbalance, like work culture and promotion barriers. This may involve overhauling critical human resources processes, like performance reviews and hiring rules. IKEA, who has pretty much achieved gender parity in its leadership roles, says this approach was critical to their success.
Improving board refreshment practices and leveling the playing field do not only foster durable progress in board diversity. Because these practices tend to enhance the bottom line by improving corporate governance and protecting human capital investments, they may also help neutralize political opposition against DEI efforts.