In 2016, women held 20.2 percent of board positions in Fortune 500 companies. The next year, the annual PwC director survey found that 43 percent of directors believed there should be equality or near-equality on boards (“equality” defined as 41-50 percent female board members).
According to the numbers, however, belief does not translate into action. ISS QualityScore data showed that, among the Russell 3000, only 28 percent of boards have at least 20 percent female board members and only 1.7 percent of boards have at least 40 percent female board members.
The solution to the disconnect is not as simple as adding more women to boards or implementing board quotas, though. The root problem originates far below the boardroom, when women moving up from the front lines fall out of the workforce due to the leaky pipeline.
Women in Leadership: A Ripe Opportunity
Currently, women make up 46 percent of the entry-level workforce. This number falls to 33 percent at the senior management level. By the time we get to the C-Suite, only 19 percent of executives are women.
According to the 2018 Women in the Workplace study, men are promoted at a 21 percent higher rate than women during crucial early career stages. Additionally, 24 percent of women feel their gender has played a role in missing out on a raise, promotion or chance to get ahead (compared to 8 percent of men), and 29 percent of women feel their gender will make it harder to be promoted in the future (compared to 15 percent of men).
Despite the leaky pipeline, studies repeatedly show that having women in leadership positions and in the boardroom is significantly beneficial.
- A 2020 Women on Boards analysis found 55 percent of companies that fell off the Fortune 1000 index had one or fewer women on their boards.
- A Harvard School of Public Health study found companies with the highest number of female directors on their boards had a 42 percent greater return on sales.
- According to the CFA Institute, companies with strong female leadership generated a 10.1 percent return on equity per year, compared to a 7.4 percent return on equity per year for those without strong female leadership.
- The CFA Institute also found companies lacking board diversity suffer more governance-related controversies than average and that having more women in board positions does not indicate greater risk aversion.
How Can We Get More Women on Boards?
Given the prospective economic gains, how can we get more women on boards?
1. Hold female and male candidates to the same hiring standards.
Hiring internally is an excellent opportunity to increase a company’s gender equity and move talented female candidates along the pipeline. However, it’s important to hold both male and female candidates to the same standards, removing unconscious bias from the internal hiring process.
While many don’t believe their internal hiring system is biased, the case still remains that many women do not feel the best opportunities go to the most deserving employees within their companies. Sixty-one percent feel this is the case in their companies and 60 percent agree promotions at their companies are not based on fair and objective criteria.
When companies look at potential hires through a data-centric, AI-powered lens like Pipeline™, it eliminates unconscious bias and ensures the most qualified individual is hired into the available position.
2. Create a pipeline of female leadership at the front-line management level.
The lack of women on boards starts way back at the front-line managerial promotion level. Women are less likely than men to be promoted to management positions, a trend that continues up the corporate pipeline and manifests as just one in five women at the C-Suite level.
Fix the disparity at the front-line management level and well-qualified women are set up to move through the pipeline to board-level positions. Research shows that organizations with 30 percent female leaders can add up to 6 percentage points to their net margins. Creating a pipeline for female leaders puts talented candidates in the right roles, benefitting both individuals and the organization as a whole.
Additionally, when you put women in management positions, the effect propagates, as having female leaders creates less gender bias in future recruitment, promotion and retention.
3. Create a pipeline of female leadership in industries that traditionally lead to board seats.
In many instances, boards look to CEOs and CFOs as new member candidates. Unfortunately, this limits the pool of qualified females. Women make up only 5 percent of Fortune 500 CEOs and account for only 12.6 percent of CFO positions in leading businesses. While broadening the type of candidates considered for boards helps alleviate this obstacle, creating a pipeline from the outset for females in industries that traditionally lead to board seats is also a solution.
Sales and finance is a prime example. Roles in sales and finance are found to lead to CEO and CFO positions and then board seats, but one of the biggest gaps of women in leadership positions is found within sales.
Similarly to how boards with diverse members perform impressively, diverse sales teams also excel. Sales teams with a percentage of women above 44 percent are 7 percent more profitable than their less-diverse competitors. Conversely, teams with lower percentages of women have lower sales and profits.
When the sales and finance sectors encourage female participation, they’ll see increased sales from the beginning and more diverse boards — along with the economic boost they bring — in the long run.
4. Sponsor Female Talent.
Sponsorship of female talent is important to increasing a company’s gender equity and the same holds true when it comes to creating a diverse board. A Women Corporate Directors Foundation survey found that board leaders serving as champions of board diversity was believed by many employees to be the top way to build diverse boards.
When you create a pipeline of female leadership, sponsorship may naturally follow, but it’s important to differentiate between sponsorship and mentorship of female talent. A mentor teaches talent how to do the job, while a sponsor opens the door for the talent to continue the work they’re already doing well.
The Benefits of Gender Diversity at the Board Level
There are myriad advantages to increasing diversity of boards. From the financial boost, such as a nearly 3 percent higher return on equity per year, to the cultural benefits of providing sponsorship for up-and-coming female leaders, diversity creates far-reaching opportunities at every level.
The Pipeline™ platform gets you closer to achieving gender equity by making concrete recommendations for promotions, pay and more. For a more diverse board tomorrow, begin pursuing gender parity today and start seeing the effects throughout your organization. Schedule your demo now.
© 2018 Pipeline Equity Inc.