Wall Street’s New Call for More Women Directors
February 07, 2018
First they demanded that companies do good—to make a positive difference in their communities. Now, giant institutional shareholders are shifting to another cause: asking organizations to get more women on corporate boards.
Not even a couple weeks after its “do-good” open letter, the world’s largest institutional investor, BlackRock, let firms know that it will demand explanations from them if they don’t have at least two women on their boards. In doing so, the group joined another investing giant, Vanguard, which five months ago also advocated for more women on boards and in senior leadership positions.
Though symbolically important, the moves come at a time when at least some Fortune 500 companies have apparently already gotten the message. Dennis Carey, vice chairman and co-leader of Korn Ferry’s Board Services practice, for example, says more than half the boards he’s working with this year are looking for qualified female candidates. Indeed, he says, qualified women can now be selective in their choice of which boards to serve, a big change from only five years ago.
As the push for diversity grows, so does the research that supports it, with studies finding that firms with different voices on the board perform better. The stock index firm MSCI reports that organizations with at least three women on the board had consistently higher returns on equity than firms without that much female board representation. A recent Korn Ferry study showed that even adding one woman to the board of a financial services firm helps improve employee engagement considerably.
“[Regardless] of a company’s industry, location, or size, we believe that a lack of diversity on the board undermines its ability to make effective strategic decisions,” BlackRock noted in the letter it sent to the 1,000 large firms that make up the Russell 1000 stock index. More than one-third of Russell 1000 firms have fewer than two women on their boards, according to data compiled by Bloomberg.
Instead of establishing a number for board spots held by women, experts say companies should think of it in terms of a percentage of board spots. “If you get 20% diversity then you’re moving in the right direction,” says Tierney Remick, vice chairwoman of Korn Ferry’s Board and CEO Services practice. The push by the big shareholders, Remick says, is another way to encourage boards to have diverse points of view.
One issue has hampered some search efforts—an unwillingness by a woman executive’s current company to let her serve on the board of another firm. Historically, executives, male or female, must seek out the permission of their current firm to take on a board spot. Because of increasing demands on board members, some firms don’t want to let their own board members or leaders spend a lot of time helping another firm out, Carey says.
To help rectify that, experts say firms that are seeking more female representation should broaden their searches. There is a global pool of female executives, both active and retired, from large and small firms, who could be qualified board candidates, Remick says.