Why getting more women on boards is so necessary

Professor Nonna Martinov-Bennie: Challenging ideas around merit, as the most reliable measure for bringing leaders and directors on board, is key for companies wishing to improve their gender ‘scorecard’. Professor Nonna Martinov-Bennie: Challenging ideas around merit, as the most reliable measure for bringing leaders and directors on board, is key for companies wishing to improve their gender ‘scorecard’.

Women continue to be under-represented in leadership positions across many sectors with the consequent under-utilisation of their talents and skills at decision-making levels. While this isn’t news to anybody involved in modern work life, exactly how to secure gender equity so that all benefit from a more balanced representation in community and business leadership, is an issue spanning all sectors and industries. At the corporate governance level the current focus is on increasing women’s representation on boards of directors.

Evidence for women on boards

There is evidence that the presence of female directors enhances boards of directors’ effectiveness and their market as well as social performance. For example, Terjesen and colleagues’ 2015 study of over 3,500 public firms in 47 countries found that firms with female directors have better financial performance and send a positive signal to the public regarding a firm’s ethical behaviour. Recent research by Byron and Post (2016) also found that having women on boards is particularly effective for enhancing company reputation in countries where companies are actively motivated to draw on the resources that women directors bring to a board.

Setting targets

The use of gender quotas and targets on company boards, although controversial, highlights that without clear targets, accountability measures and improved reporting of women’s participation on boards of directors, real progress is unlikely. 

An increasing number of countries have established quotas for female representation on publicly traded and state-owned enterprise boards of directors. Legislation around gender quotas varies but generally entails a set quota for gender (ranging from 33-50%), time period ( 3-5 years), with penalties for non-compliance (e.g. in Italy, sanctions range from admonishment by regulatory body, fines and annulment of the board; in France, board appointments that violate the quota are annulled).

Australia has opted for voluntary targets without penalties for non-compliance rather than mandated quotas. The current Australian Institute of Company Directors (AICD) target  for the top 200 companies’ boards on the Australian Stock Exchange (ASX 200) is 30% female representation by the end of 2018. AICD’s 2016 Gender Diversity Quarterly Report is hopeful of reaching this target despite reporting that many ASX 200 boards still don’t see female appointments as a strategic imperative that leads to better performance and board decisions.  

Rethinking merit-based decision making and bias

Organisations claim that while they are committed to equity and diversity their hiring decisions are, on the whole, based on merit. This is understandable as merit being a combination of past performance and future potential can be helpful in gauging the likely contribution of an individual to an organisation’s leadership. However, merit is also a ‘fuzzy’ and subjective measure. Merit-based judgements are consequently subject to bias,  personal opinions and ‘cultural fit’ phenomena that often disadvantage female candidates who are very capable and skilled but are outside the generally narrow norms and expectations. Challenging ideas around merit, as the most reliable measure for bringing leaders and directors on board, is key for companies wishing to improve their gender ‘scorecard’.

Some way to go

Gender balance on Australian boards still has a long way to go. There are currently 20  ASX 200 companies without any female directors, while 29 companies need two more female board members and 99 companies need one more board member to reach the 30% target by 2018 (AICD, 2016). According to Australia’s gender equity scorecard released in November, 24.7% of board directors are women and 12.7% of boards have a gender target (Workplace Gender Equality Agency, 2016) making it very apparent that women are under-represented in Australian boardrooms despite a far larger overall talent pool than in the past.    

Professor Nonna Martinov-Bennie and Dr Karina Luzia

Professor Nonna Martinov-Bennie and Dr Karina Luzia work at Macquarie University’s Faculty of Business & Economics (FBE)

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