Why Three Quarters of Board Directorships Still Go to Men

February 14, 2019 – Boards of directors may very well be the most influential decision makers in business. They choose the CEO and review and assess much of the top talent for their organization. They help determine vision and strategy. They deal with legal and technological challenges, financial regulation and reputation issues — all critical items that can impact a company’s ultimate success or failure.

Many boards’ own lack of diversity, however, means that they are missing the perspectives of key stakeholders, including their own organization’s emerging leaders and the consumers of their products and services. Over the past two decades, there has been an active effort to place more women and others with diverse backgrounds onto boards — a push driven by some vocal business leaders, governments and, increasingly, shareholders, some of whom are now trying to force change through activism.

Egon Zehnder has tracked gender and international diversity on boards around the world for the past 14 years. The firm recently released its ‘Global Board Diversity Tracker’ study, which found the accelerating growth seen in female directors in Western Europe to be levelling off while growth elsewhere remains sluggish. At the current pace, the firm said, boards may never be reach gender parity.

The research, examining data from 1,610 public companies with market caps above €7 billion in 44 different countries, showed that despite the slow improvement in the number of women on boards, nearly three quarters of all new board positions worldwide still go to men.

“We need diversity, but it’s simply not happening fast enough,” said Jill Ader, chairwoman of Egon Zehnder. “New voices and perspectives are essential to unlock the transformational capabilities that businesses tell us they need. Companies — starting from the very top — have to recognize the impact that a critical mass of women on the board and the executive committee makes and take the steps needed to bring that about.”

Key Findings

The biennial study finds that both female and international representation on boards has improved significantly since Egon Zehnder started tracking board diversity in 2004. But for boardrooms to truly reflect society, the firm said, a new approach is needed.

In 2018, 84.9 percent of large company boards across 44 countries included at least one woman among their directors. Overall, 20.4 percent of all directors in the countries studied were women — up from 13.6 percent six years ago. In Western Europe, board positions held by women have risen from 15.6 percent to 29 percent over the same time period.

On the international diversity front, 72 percent of the companies surveyed had at least one non-national board member. In 19 of the 44 countries studied, all of the large cap companies have at least one female director. This “One on Board Club,” up from 15 countries in 2016 and just eight in 2012, includes nine countries that have instituted a quota, a law requiring that companies reach a certain percentage of women on boards by a specified date.

Women Board Director Appointments Reach Record High
In a significant shift from a year earlier, women have made substantial progress in the boardroom, according to Heidrick & Struggles‘ 2018 Board Monitor Report. The report found that women accounted for 38 percent of incoming board directors at Fortune 500 companies, a substantial rise from the previous year’s 28 percent.

The progress is far from consistent, however, as 15 percent of large cap companies still have no women on their boards, said Egon Zehnder. Twenty-five countries, including China, Brazil and Russia, are home to large companies with no women on their boards at all. And in the past two years, the overall percentage of companies with at least one woman on the board has stayed roughly flat.

Magic of Three

Egon Zehnder called on businesses to apply the “magic of three” rule. Appointing one woman to the board is not sufficient, the firm said. To reap the benefits of gender diversity, “at least three women are needed to change the way the board is run and the way women are able to share their insights,” the study said.

Related: U.S. Boards Seen as Slowly Evolving

The importance of making diversity part of a company’s strategy was underlined by the business leaders Egon Zehnder spoke to as part of the study. Paul Polman, CEO of Unilever, said: “I would have a hard time even understanding how you can be successful as a business if you cannot mirror the society that you serve in the first place” and that driving diversity “really has to be done with conviction by the CEO of that company.”

Inside the Numbers

The number of women on boards continues to increase, said Egon Zehnder, but is losing momentum:

• France is the global leader, with 42 percent female board members, vs. less than six percent in Hungary, Japan, Saudi Arabia, South Korea and the UAE.
• In 2018, new board appointments made up 11.4 percent of all board positions globally, of which 27 percent were women, an improvement on the figure from the last report of 24.1 percent. This means that just 3.1 percent of all board positions are held by new female board members.
• Appointments of female directors to boards, however, varies heavily by region. Of new board appointments in 2018, 35 percent were women in Australasia, Western Europe, the U.S. and Canada, vs. 16.7 percent in South America and 12.5 percent in Asia. In the U.S., the overall percentage of female directors has risen just 3.2 percent since 2012.

Related: Boards Seek Diversity With Help of Executive Recruiters

While there has been significant progress in recent years, many companies are far from having three female directors:

• In 19 of the 44 countries studied, all of the major large cap companies have at least one female director—up from 15 countries in 2016, and just eight in 2012.
• Yet in only 13 of 44 countries do the largest companies average three or more women per board, with five countries (Belgium, France, Germany, Sweden and Italy) averaging four or more. All of these countries except for Sweden operate under some form of quota system. Western Europe is leading the way with an average of 3.8 women per board, followed by Australia/New Zealand with 2.7, and North America with 2.5.

Global Boards Step Up Efforts to Broaden Roles for Women
Australian cabinet minister for women, Michaelia Cash, has called for a stunning new target of 50 percent for female representation across all of her country’s government boards. The current gender diversity target stands at 40 percent. 

Beyond representation in the boardroom, the number of female executives and especially CEOs remains stubbornly low:

• Women make up just 3.7 percent of worldwide CEO positions, and that number has not changed over the past two years.
• Only 5.6 percent of executive board positions are held by women.
• In 23 countries—including Norway, Germany and Canada that lead on other diversity metrics—there are no female CEOs in the large set of companies studied.

Action Plan

Companies have come to realize that in this time of dramatic technological change, the “traditional” perspective on governance is no longer sufficient, Ms. Ader said. “New voices are needed — and many of those are women,” she said.

Karoline Vinsrygg, co-leader of Egon Zehnder’s diversity council, said: “When gender diversity becomes the norm in a boardroom, we also start seeing more types of diversity, such as ethnic background, expertise, etc.”

Related: 10 Key Findings That Impact Board Performance

Ashley Summerfield, managing partner of the U.K. board practice at Egon Zehnder, said that “at every stage — briefing, long lists, interviewing, selection — the nomination committee should repeatedly ask itself, ‘Could this individual — because of gender, ethnicity, career experience, thinking style — bring us valuable, fresh angles that may take us out of our comfort zone but be a service to stakeholders in the long run?’”

The approach of business must change, Egon Zehnder said, if business is make real progress on gender diversity. The firm offered this advice:

• Pick for Potential– “Our work with businesses has found that certain personal traits are better indicators of success than a lengthy CV.”
• Make Leadership Accountable– A focus on diversity has to be a core part of a company’s strategy, and an explicit goal set by senior leaders and directors.

• Raise Your Ambitions: Focus on Three – Until a board achieves the critical mass of three women, little is likely to change. Directors must be proactive in spotting female talent, and consider board term limits or more active turnover.
• Train the Board for Success — Chairs and directors must prepare the board for the fact that diversity of perspectives and opinions could make doing the work of the board less efficient but more effective.

Related: Progress Slowing for Women on Corporate Boards

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media