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UK CEOs OPINIONS: WOMEN AND THE NEW BUSINESS LEADERSHIP |The gender diverse board

A Financial Times editorial, commenting on Lord Davies’s review of how the UK government could encourage the appointment of more women to boards put the case as follows: “Male dominance of boardrooms creates two distinct problems. Companies with few women have failed to recruit from the widest pool of talent. And boards that are not diverse may exhibit more blinkered ‘group-think’ and conformism, damaging both business and society more generally.”

The FT’s first point is obvious, and has been made often.

Its second point is a relatively new argument that has been given a particular edge in recent years by the banking crisis and its protracted aftermath.

His recommendations focused on FTSE 350 companies – the constituents of the FTSE 100 and FTSE 250 stock market indices.
Some of those were:
1 All Chairmen of FTSE 350 companies should set out the percentages of women they aim to have on their boards by 2013 and 2015. FTSE 100 boards should aim for a minimum of 25 percent female representation by 2015 and Davies expected “many will achieve a higher figure.” Chairs should announce their goals by September, 2011. All Chief Executives are also expected to review the percentage of women they aim to have on their Executive Committees in 2013 and 2015.
2 Quoted companies should be required to disclose the number of female employees in their organisations each year, the proportions of women on their boards and the number of senior female executives.
3 The Financial Reporting Council (FRC) should amend the UK “Corporate Governance Code” to require listed companies to formulate policies on boardroom diversity and measurable objectives for implementing them, and disclose annually summaries of these policies and progress made in achieving the objectives.
4 Companies should report on the matters in recommendations 1, 2, and 3 in their Corporate Governance Statements, whether or not the above regulatory changes have been made, and Chairmen are encouraged to sign a charter supporting the recommendations.

meetAccording to Peninah Thomson in her excellent book WOMEN AND THE NEW BUSINESS LEADERSHIP, although the point is seldom put so bluntly, an implication of the FT’s second point is that the all-male board does not work as well as the gender diverse board, and a substantial influx of women to boardrooms would significantly improve corporate governance and so reduce the chances of a recurrence of the global financial crisis.

Sir Philip Hampton has warned UK companies that they are “drinking
in the last chance saloon” – that unless they make substantial and visible
efforts to improve gender diversity on their boards in the very near future,
mandatory quotas are inevitable.

The idea that appointing more women to senior management positions may be part of the solution to the governance problems revealed by the financial crash is not confined to the corporate sector.

According to Annex 4 of the Walker review: “board behaviour cannot be regulated or managed through organisational structures and controls alone.”
It develops over time, in response to current and anticipated situations.
It’s learnable, and depends on situational demands, such as the “strategic context, social influence, and the dynamic of the group itself.”
Annex 4 distinguishes between “learnable” behavioral abilities and “intrinsic and innate” traits. Citing leadership research from the 1950s onwards, it says “traits do not influence leadership ability as much as a person’s ability to learn rapidly from, and facilitate behavioural development in others,” and recommends that executive and non-executive directors be “schooled in group relations, power dynamics and the behaviours and processes” needed to maximize “the intellectual capability of the
group.”
In academic studies this is known as “transformational” as opposed to “transactional” leadership, which rewards good and punishes bad performance. Annex 4 says transactional leadership is “predominant in the financial industry, where high risk, high pressure and high rewards dominate.”

Finally, The Economist editorial contradicted itself. It said “the new feminists are right to be frustrated about the pace of women’s progress in business,” but later counseled patience. “Women are now outperforming men markedly in school and university. It would be a grave mistake to abandon old-fashioned meritocracy just at the time when it is turning to women’s advantage.”

The University of Exeter research also found that companies with one or more women directors out-performed those with all-male boards on Return on Assets and Return on Equity and were, as other studies have shown much better investments in the longer run.

The research team’s leader, Professor Alex Haslam, said:

Our study shows very clearly that shareholders tend to devalue companies with women board members and to chronically over-value those with all-male boards. What is not clear is whether this is because shareholders feel that women perform less well on boards than men or whether they see a woman’s appointment as a signal that the company is in crisis. Whatever the reason, it is clear that this response is unwarranted, because there is no objective evidence that having female board members damages a company’s performance. If anything, the opposite is true.

Sir Roger Carr, Chairman, Centrica plc a founder member of the “30% Club”, has no doubt about the value that women bring to boards. For him, the debate about whether or not women have contributions to make, as women, to the new company leadership is over. All that remains to be decided is the practical matter of how to achieve better gender diversity on boards.

The challenge is to increase female participation on boards and I believe the way to do that probably embodies three things:

First of all a commitment from companies to the expansion of numbers of women on all boards as a principle.

Second, for Chairmen to aspire to the non-executive content of their Board being at least 30 percent of women within the next five years, commensurate with the business and skills requirement of their organisation.

And finally companies should ensure that within their organisation their policies and processes encourage, support and provide opportunity for women to develop and grow to enrich the talent pipeline for board membership.

Chris Dedicoat, President, European Markets, Cisco Internationak, says his view on the predicament of women in senior positions has been further endorsed by his experience as a mentor on theFTSE 100 Cross-Company Mentoring Programme.

Personally, I don’t believe there is a huge amount of difference between the
attributes required for a successful male or female leader. Gender should be
irrelevant. We need to understand that male and female leaders may execute
in different ways and display different leadership traits, but the fundamental
capabilities are ostensibly the same. The important point is to build inclusive
and diverse leadership teams.
The alpha-male type tendencies which have already become obsolete in many
globalised companies can be evident in both male and sometimes female
executives. In my experience, successful female (and male) executives express
themselves through who they are, not who they are trying to be. I see that in
my mentee. She is herself, and she is comfortable with that. She doesn’t try to
be someone else. As a consequence she can lead and be comfortable with her
style, and people around her will be comfortable with her style.
Sometimes I see female executives trying to exhibit the traits of others who’ve
been obviously successful. It doesn’t come naturally to them and in my view
doesn’t work well for anyone in the long term. My mentee doesn’t do that –
she’s herself. She leverages her attributes.

Niall FitzGerald, KBE, Deputy Chairman, Thomson Reuters, also thinks the world has changed since the crash and continues to change.

Society at large will become less tolerant of bad behaviour. It’s currently too tolerant. The consequence for business leaders is that they will have to be much more conscious, in their early thinking, about the impact of their actions on society.

It’s time for them to think about the balance of values and to be much more alert to the fact that unless they behave appropriately, although they may make lots of nice profits in the short to medium term, they may endanger and undermine their organisations in the long term.

It is not good business to behave that way. Previously, you could actually make a good case for saying: “I’m not about minding society. I’m about running my business and making money – everyone must take care of themselves.” In the future, society won’t allow businesses to behave in ways that undermine trust and threaten the sustainability of society itself.

There’s a big issue there. I also think more and more businesses will look for people with a more grounded sense of the role of business in society. You can’t have a successful business in a broken society – it doesn’t work. So, as a business leader, you have to help society to become successful; helping, not in a socialist sense, but helping a wider group of people to benefit from what business does. That is going to require a different approach to leadership. It is not simply about, as it was in the 1990s and perhaps in the early part of the 2000s, the pursuit of shareholder value. It’s about the pursuit of things that create value, and that lead to shareholder value creation.

Peter Drucker was once asked:

“What is the single purpose of an enterprise?”

His answer was: “to acquire and retain customers.”

If you do that everything else follows. You can now expand that, and say it is to acquire and retain customers in a responsible manner in relation to the rest of society. If you do that, everything else follows.
It is difficult for me to separate what I see happening from what I myself believe should be happening, but it’s my impression that people are beginning to see that the only real measure of success is building and growing a sustainable entity, not something which, in ten years, has burnt itself out because people behaved badly.

David Kappler, Deputy Chairman, Shire plc  thinks that the 2007–08 crisis has implications for the way companies are run.

I suspect it means the world is going to get more difficult, and corporate governance is going to become an even bigger issue. I do not work in financial services, but clearly the Walker report has made, probably quite rightly, from what one understands, a number of recommendations for financial services, which are likely to be picked up by Chris Hogg’s report for the rest of us. [Baroness Hogg (no relation, see above) replaced Sir Christopher Hogg as Chairman of the FRC after we spoke to Kappler]. Life is going to get harder.
What was laughably described as “comply, or explain” is out – it is now comply or comply. That doesn’t take into account the circumstances of companies. If you don’t want to comply it’s not easy to explain why not. It can be done, but probably has to be done with a strong share price.

As far as selecting board candidates [is concerned] I’m not sure if anything has really changed outside financial services. As chairman, one always tries to ensure that one has a balance of skills, backgrounds, and disciplines among the non-executives. I don’t believe we need more people with financial experience. If you go too far down that road you don’t get enough commercial people – enough marketers, enough scientists or enough new ideas people – as non-executives. I would fight fairly hard against that and try to bring on new people with different ideas, from different disciplines.

I have an argument going on at the moment, on one of my boards. I am trying to put in somebody from outside, with a great marketing and innovation background, but without corporate governance or PLC-type experience of which we have plenty already. Why not go for her? I may well lose the vote on it.

Another change is that if somebody isn’t fitting on the board, we act more quickly and say “look here, Fred, I know you’ve only done a couple of years, but the chemistry clearly isn’t working.” Four years ago we would let him do his six years so he could leave with his head held high. Some NomCos [nomination committees] are saying “look, we said we’d keep you on for a two-year cycle.
Two years is up.” In one company I’m involved with we only give people two-year contracts. We have three-year contracts in terms of reappointments at the AGMs [annual general meetings], but the personal contract they have with the company is on a two-year basis.

It’s a positive trend that will enhance the overall effectiveness of the board, butit does require good candidates to replace those who leave.

So the pool has toget bigger.

David Reid, Chairman, Tesco plc, does think the world has changed.

Since the economic crisis he sees “a rapidly changing world in terms of failures in corporate governance, economic and social challenges, and issues of sustainable development,” and he sees:

Even more opportunities for women to participate at senior levels in business, because they bring their own skills and specifically a more balanced and sometimes a wider perspective as well as good dynamics to boards.

The key criterion for success and being an effective Board is not just profit and shareholder value. It’s also about governance, social conscience and societal performance.

… You need all of these to deliver a sustainable long-term performance. Apart from their own technical skills as experts in particular areas, women can bring a wider, more balanced, probably fairer perspective into boardrooms. I find women to be very perceptive on behaviour at the Board and good at team building and finding constructive solutions.

… We have to make it easier for women to fulfil their potential, in the context of the business they are working in.
I think we need to take more risk and provide more support to make this happen; and we need to encourage women to take up positions in the core of their business, and operational rather than support roles.
I think any interventionist strategy, such as legislative or code compliance, is missing the point. To be successful is not a question of the right numbers, although that will be the outcome. It’s a question of values and of women working in an environment where they can use and maximise their talents.
Usually their contributions are obvious.

And that, to me, is win–win. It’s a win for boards and the senior echelons, a win for the women themselves and I think, ultimately, it’s a win for the shareholders and a better and fairer society for all.

Overall I think women can join in and make the boardroom a better place.

So: good news for companies that see the advantages and make it happen.

And Peninah Thomson, at a point in her book concludes:

To expect some of the leaders and most distinguished practitioners of the current corporate governance system to vote for fundamental reforms of that system might seem unreasonable. The business leaders whose views are summarized above all have a clear vested interest in the status quo.
They are not the sort of people, therefore, to whom one would normally look for trenchant criticisms of the current system.

About Dr. Ev D'aMigo; PhD

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