March 26, 2021 – Around the world, countries are taking steps to encourage or mandate improved gender diversity in the boardroom. Those efforts vary by country, as does their effectiveness and impact. A new report from Russell Reynolds Associates takes a look at what is occurring in six countries, hears from female directors about what they are encountering, and provides recommendations to boards on steps they can take to improve both the diversity and inclusion of their board of directors. “The issues the directors raise run the gamut from challenges in accelerating the pace of change to diversity practices, and sustaining the pipeline of board ready talented women, to expanding the definition of what background and skills are required for a board candidate,” the report said. “All of them, however, ultimately get at giving more opportunities for women to lead in the boardroom and ushering in a culture of inclusion for new and diverse directors.”
Corporate Japan’s lack of gender diversity is a globally recognized issue. In the 2020 global gender gap report, Japan ranked 121st out of 153 countries for female representation. The recent comments made about women in the workplace exposed the depth of unconscious bias. “Corporate Japan will now be required to set voluntary targets for female and foreign managers under a revised corporate governance code due out in the spring of 2021,” the Russell Reynolds report said. “Both foreign and Japanese investors are calling for more gender diversity at both the senior executive levels and on supervisory boards. The momentum is shifting, and the race is on for corporate Japan to improve the gender diversity in the boardroom.”
Female board directors are driving change from the inside as well. Ritsuko Nonomiya, managing director and member of the board of directors at GCA Corp., as well as a board member at Shiseido and other companies, shared how she underscores the importance of women’s participation on boards in Japan and the strengths they bring to the boardroom: “As a woman I worked hard to acquire my expertise and the ability to make a point of difference, which is a value. I would like to think I contribute by using my deep expertise and offering a different perspective to enable boards to hold a quality discussion, which gives a much better chance to have a balanced view. Traditionally Japanese corporate boards are run by only male executives from similar backgrounds, and therefore the same way of thinking. All board members should play their roles to assess business from different perspectives. By including women on boards not only provides their unique expertise, but also enables other board members to see issues from different angles.”
At Least One Female Director
The U.S. has seen a push to improve gender diversity originating in individual states, like California, which now mandates gender diversity in boardrooms. Publicly traded companies based in the state now must have at least one female board director — or face a $100,000 fine. This push has increased the number of California-based companies with at least one woman on the board from 173 in July 2019 to 282 in March 2020. While there are not yet requirements at the national level, at least 11 other states have enacted similar legislation or are considering doing so. The report says that none of the other existing statutes mandate minimum numbers of female directors; instead, they focus on mandating increased disclosure about the diversity of the board of directors, and in some instances, senior management, too.
COVID-19’s Impact on Diversity Recruiting
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The pressure around diversity disclosures has intensified as NASDAQ has proposed new listing rules that could require companies to disclose the diversity of their directors annually, and to have at least one diverse director on the board within the next two years or explain why they are out of compliance. This is the first of its kind requirement by a stock exchange.
Russell Reynolds Associates has seen and heard in many cases that where quick growth in diversity numbers happens, the problem of tokenism arises, when women on the board are appointed to a seat but not truly given a voice. Noreen Doyle, board chair of Newmont Corp., puts the onus for boardroom inclusivity on the chair. “The chair’s responsibility is to make sure to get people’s views,” she said. “Some people are naturally inclined to intervene where they have expertise, and others need to be encouraged.”
Hong Kong, home to the world’s biggest capital market and a critical gateway to China, needs to hold itself to the highest international standards of governance to reassure and give confidence to the global investment community, according to the Russell Reynolds report. The low percentage of women on boards is therefore a pressing issue in the business community. Since 2019, the Hong Kong Stock Exchange has required companies to disclose a policy concerning board diversity through a “comply or explain” requirement, however this has not yet led to any significant changes.
A number of influential bodies such as The Women’s Foundation and the 30% Club have long actively advocated for improved board diversity, and the current focus on ESG has encouraged many companies to review their own standards of governance. Russell Reynolds said that there is a “good pool of female board candidates in the territory, but they face three hurdles in landing a board seat: First, many state and family-owned businesses have traditionally had a strong preference for conformance and trust in the boardroom, limiting their appetite for recruiting independent board directors. Second, tenure limits are not always strictly enforced, and therefore relatively few board seats come available every year, making any change in director composition slow going. Third, only a minority of companies regularly evaluate their board composition and performance, which limits thoughtful and proactive planning of board composition, and therefore improved board diversity.”
The Australian ASX200 has achieved one-third (32.6 percent) female representation of board directors – the result of a steady increase over the past few years. The Russell Reynolds report says that a challenge for reaching gender parity on Australian boards, however, appears to be in maintaining a consistent proportion of board appointments that are women relative to all of the new appointments on the ASX. According to data collected by the Australian Institute of Company Directors, women comprised 35 percent of new appointments to ASX 200 boards in 2017, before swinging to 45.4 percent in 2018, down to 39.7 percent in 2019, and back up to 42.6 percent in 2020.
A secondary issue in the Australian market is that the relatively small pool of women currently on boards are often serving on multiple boards at a rate higher than men. “Among companies on the ASX 300, the share of women serving on four or more boards is over twice the proportion of men pulling the same load,” the report said. “To successfully increase and maintain gender diversity, placements must consistently be diverse, but to achieve consistency boards must broaden the scope of who can be a candidate to bring more new women into the pool and not burn-out the women who already serve.”
Elizabeth Broderick, founder of Champions of Change and currently chair-rapporteur of the UN Working Group on Discrimination against Women and Girls, said that these inconsistencies in representation are contributing to a false narrative in the market that “there are few talented women who could fill the role” of a board director. She said that for boards to sustain their diversity efforts, they must widen their definitions of who is eligible to serve, saying they must “ensure an open and transparent process which starts with the objective of identifying diverse candidates – looking beyond the known cadre, focusing on coaching and supporting talented women at earlier stages of their career, and focusing on personal leadership attributes as much as skills and technical depth.”
Slow Rate of Change
The situation in Brazil is that there is much public discussion about the slow rate of change in gender diversity on corporate boards, but limited action to remedy it, according to the Russell Reynolds report. The percentage of women directors has increased less than one percent each year since 2014 according to Deloitte’s Women on the Board study.
As Women Gain Seats on Boards, Minorities Fall Back
This past year, boards around the world were facing a range of competing expectations for the new members they would add in order to meet their ever-growing remit. According to Heidrick & Struggles’ 2020 Board Monitor, modern boards are expected to possess significant expertise in areas as specialized and diverse as digital transformation, cybersecurity, corporate reputation management, sustainability and social media, to name just a few, as well as to include significant diversity in terms of gender, racial and ethnic background, and national origin, among other characteristics. Beyond adding specific expertise, it’s widely accepted that more diverse teams make better decisions.
Paula Bellizia, board director of Burger King Brazil and Ânima Educação, and vice president of marketing in Latin America at Google, said that to overcome this stagnation boards should “have diversity and inclusion at the top of the agenda, rather than treat it as something to check off.” In her experience, diversity and inclusion are “still not embedded in the ordinary agenda of the boards.”
In Germany, the challenge of sustaining progress is at the forefront of the issue, according to Russell Reynolds. Proposals to mandate a certain share of women on supervisory boards has significantly accelerated the appointment of female management board members – but it may not be maintainable with current practices. In 2015, when the law for equal participation of men and women in leadership positions was passed, the share of women in the management boards of the DAX30 was 8.4 percent, and 2.7 percent of MDAX. Representation increased by nearly 6 percentage points on each index within four years. However, Russell Reynolds says that in 2020, the share of women on DAX30 slipped backwards by a percentage point at a time when every point matters.
A secondary challenge in Germany is that very few women today occupy positions of power such as board chair, deputy chair, or committee chair. There is only one female chair in all of the DAX30, and 17 female committee chairs out of a total of 142. In the interim, while boards work to improve these leadership statistics, Simone Menne, a board director at Russell Reynolds Associates, said that boards “should work less hierarchically and understand itself more as a team of experts doing their best to control and develop the company, which may create more opportunities for women who do not currently hold executive titles, but who have expertise that would add value to the board.”
Compliance Measure, or Business Imperative?
Russell Reynolds Associates concludes from its survey that diversity and inclusion should be a board priority. Everyone now seems to agree with that. “While progress on board diversity is happening, in many cases it is still treated as a compliance measure and not a business imperative,” the search firm said. “Board hiring practices should be based on balanced slates for diversity, including gender, ethnicity and experience, with a goal of reflecting the organization’s customers and employees, which will provide rich perspectives and new approaches to business challenges.”
Russell Reynolds Associates also says to look beyond traditional titles and roles for new board directors. Markets that have seen quick growth in the representation of women on boards are now facing the challenge of creating a sustainable pipeline of women leaders to maintain that progress. “Boards must become more focused on leadership attributes rather than job titles,” the firm said. “Rather than looking solely at current CEOs and retired former executives, consider women earlier in their careers who may have run and grown start-up companies, led major initiatives at large public companies, and demonstrated success in non-traditional ways.”
It is also important, the firm says, to align diverse director experiences and perspectives to new business challenges. “There will be issues happening within the organization that can be more deeply understood and addressed by diverse directors who have shared perspectives with that community, or have shared experiences,” said the search firm. “As companies expand to new markets, diverse directors help ensure a multitude of perspectives are taken into consideration, resulting in better decision making.”
It is also critical, Russell Reynolds says, to operate with a culture of inclusion to attract and retain diverse directors. “Boards must develop an understanding that increasing diversity numbers is not the end goal,” the firm said. The end goal is to hear and embrace the experiences and perspectives of diverse board directors – including women – so as to enable future success.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media