Why Board Diversity Matters?

Women make up 51% of the world’s population, spend $US20 trillion globally and influence at least 80% of all the purchasing decisions. So why do the women of the US Fortune 500 hold only 15.7% of publicly-listed corporate board positions, and women in the UK only hold 13% of FTSE 100 companies executive and non-executive board directorships?

Co-CEOs of New York City’s Chadick Ellig, Susan Chadick and Janice Ellig, talk to IIC Partners CMCO Polly Stewart about board diversity.

“I’m going to ask you to consider a scenario that may make you feel a little uncomfortable: imagine if the majority of boards were comprised almost entirely of African American male directors?” says Janice Ellig, adding: “Why is it then that the majority of boards comprised mainly of white males is acceptable?”

“Some may ask: why look for change if our predominately white male boards are functioning?” Susan Chadick states. “Is there any need for more diversity? In fact the issue, highlighted by the recent global financial crisis in 2008, is that corporate current boards are not functioning optimally and ‘group think’ may be at the heart of the problem.”

Michael Lewis, author of ‘The Big Short’ and ‘Liar’s Poker’, observed: “One of the distinctive traits of the financial disaster was how little women had to do with it.”

If the bottom line is what really counts, then the business case for the changing status quo has been made in a myriad of studies. McKinsey, Catalyst and others, show a strong correlation between better financial performance when there are more women in the board room. And these numbers are significantly better. According to one study by Catalyst, on average ROE was 53% greater for companies with more women in the boardroom; and for those who had more women in the C-Suite, ROE was on average 35% greater. Furthermore,  looking at stock price increases from 2008 to 2009 among S&P 500 companies,  the stocks of the 15 led by women CEOs gained 46% compared with the overall S+P 500 gaining 25%.

What is holding companies back?
Many organizations embrace the concept of more gender diversity. Yet, what is really holding companies back from adding more women to their board? According to Ellig, one reason is that “while companies pay lip service to wanting more women, there are no teeth in the directive”. Boards, CEOs and senior management need to be rewarded or penalized for the lack of diversity on their team. Diversity must be embraced at the top and through the organization as a strategic business imperative.”If it doesn’t get measured, it doesn’t get done!”

“The crux of the issue is that men do not see gender diversity as critical to a company’s success,” explains Ellig. This is depicted in Bain & Company’s research, The Great Disappearing Act: Gender Parity up the Corporate Ladder‘ where , 84% of women said greater diversity should be a strategic objective for their  companies while only 44% of men saw this as a critical issue

Another obstacle to gender diversity is that CEOs and boards prefer, and seek out professionals that are like them, selecting sitting and retired CEOs. In the US, the pool of female sitting CEOs is currently 12 in the F500. Boards say there is not a pipeline of qualified women, and perhaps not if the pool is only in the CEO category. However, the pipeline is bulging with female talent from other sources such as entrepreneurs, academia, sciences, those in the C-Suite and those leading major P&L divisions of corporations which could be stand-alone companies. The supply is there, it is about looking outside the box to reach broader pools of talented women.

“Old habits die hard,” Chadick explains. “Those on boards  want to bring on people they already know as  the old boys’ network is still managing to exclude women.”

She explains: “The Bain & Company study also showed that while men and women agree on the advancement of women, twice the number of women as men believe that being appointed to higher positions is not as likely to happen. Men do not see that as a problem; they believe the glass ceiling has been cracked if their own company has  promoted women. They  are unable to look beyond their own company to  see what is occurring in thewider corporate environment.”

Who is promoting diversity?
Countries including Norway, France and Spain have passed legislation requiring a 40% representation of women on all boards. In the U.S. Stephanie Sonnabend, CEO of Sonnesta Hotels, has started the following initiative: 20% female representation on US public boards by 2020. In the UK a 30% initiative has been started by Helena Morrissey, Chief Executive Officer of Newton Investment Management Ltd, favoring an increase of women representation to 30% by 2015, without having legislating quotas. The UK statistics prompted the former UK government minister, Lord Davies, to warn British firms that they were in the “last chance saloon”. If they didn’t move quickly to appoint more women to top positions, they would have to face quotas.

Organizations such as Catalyst, ION, Women Corporate Directors, The International Women’s Forum, DirectWomen, C200, 85 Broads and others, are promoting their members by helping establish a talent pipeline of women to serve on corporate boards. External forces – like the Securities Exchange Commission (SEC) in the US – are requiring greater transparency to describe why and how directors qualify to be on a specific corporate board. They want to know if the company has a diversity policy, and how that affects  its board recruitment practices.

Organizations such as CALPERS, CALSTERS, CALVERT and PAX are voting to withhold investment funds at companies who do not practice greater diversity on boards. In the past two years, the carrot and stick approach is showing positive results, .

According to Ellig, “We  will see this as a developing trend moving forward, and if the large index funds held by, Blackrock , Vanguard, State Street and T.Rowe Price exert their muscle, change will occur..”

Multi-prong Solutions
Without quotas, no single force will be responsible for ultimately changing the face of global boardrooms.  Change, particularly in the U.S., will be driven through an organic, collective effort within the business community and from multiple voices continuing to advocate the bottom line benefits of leadership diversity.

CEOs need to take a public stand that diversity is a business imperative demonstrating to the boards, senior management and middle management, employees, shareholders and the public that more gender diversity means better financial performance for their organization.

On the institutional investor side, large institutional investors need to not vote for directors where it is an all male board.

Chadick and Ellig recommend that corporations and the Executive Search Industry be more proactive:

1) Educate the board and management of the positive, financial performance impact greater diversity has. Make diversity a strategic business imperative, comparable to revenue targets. The board and CEOs must penalize leaders for not meeting this objective;

Ellig stresses that CEOs and boards need more than just tone at the top. Accelerating change requires a TEAM approach-Tone, Education, Action, Metrics-that is embraced and integrated throughout the entire organization.

2) Develop an internal pipeline of talent as a feeder group for the C-Suite and for external board positions. It is not a level playing field within companies, and when women at the top leave their positions it is difficult to regain that representation. According to Bain & Company, even a 5% difference in the female attrition rate results in having half the number of women at the top after a 10 year period;

3) Widen the sources to new pools of talent in order to increase diversity at the board level, to attain a diverse slate of highly qualified, candidates. Search firms need to be more proactive with clients.

4) Board assessments need to be more rigorous, not just at the board or committee levels, but of individual directors. Dead wood does exist in virtually every boardroom and to protect shareholder value and uphold fiduciary responsibility, board members and institutional investors need to refresh the composition of the board.

5) Make a proactive plan and stick to it. Commitment at the top by Boards such as Texas Instruments paid off over a 10 year period, resulting in 40% diversity and excellent financial performance.

“The optimist in me says if we keep talking about it, and if we keep writing about it, increased diversity on boards will happen naturally,” Chadick states. “The realist in me says let’s give this a big push to ensure diversity parity is attained.”

By Polly Stewart

* This article is taken from the following link: http://iicpartners.com/

How can EU citizens interact with the European Union?

Many procedures exist at the European level to ensure the participation of its citizens.

You will find below the different possibilities developed to enable citizens to participate in the European policy-making process as well as the various procedures put in place to facilitate EU citizens to claim their rights.

 

Elections of the European Parliament

Since 1979, the Parliament is directly elected by universal suffrage every 5 years. The voting system is not uniform and each country has its own electoral system. However, the European law imposes the respect of some common principles. Every EU citizen residing in a Member State country has the right to vote and to run as a candidate for the European Parliament in the country in which he resides. The electoral system must be based on proportional representation and the election threshold cannot exceed five percent.

The allocation of seats to each Member State is based on the principle of degressive proportionality which takes into consideration the size of the country’s population and over-represents the smaller countries. For example, Germany has 96 MEPs for a population of 80.000.000 people and Malta has 6 MEPs for a population of 650.000 people. If the MEPs are elected on national lists of national parties, the division inside the Parliament is not based on national delegations but on transnational groups organized according to political affinities.

 

Petition

One of the fundamental rights of European citizens is the right of petition. All EU citizens and residents benefit from that right, whether they are a natural or a legal person. They can submit a petition to the European Parliament individually or in group. In order to be admissible, the petition must fulfill several conditions:

 The petition must be in the form of a complaint or a request,

  The language used must be one of the official languages of the EU

 The subject must be related to an EU field of competence which directly affects the petitioners

 The name, nationality and address of each petitioner must be written in the petition

 

The petitions are dealt by the Committee on Petitions of the European Parliament.

The outcome can strongly vary depending on the petition. When the petition is related to a specific case, the appropriate authorities may be contacted to intervene. If the petition concerns a matter of general interest, political action may be undertaken or the case may be examined by the Court of Justice. In any case, a response detailing the action taken and their results will be sent to the petitioners.

 

The Ombudsman

The European Ombudsman is in charge of investigating complaints about maladministration in the institutions, agencies and bodies of the EU.Maladministration covers discrimination, abuse of power, failure to reply, refusal of information or unnecessary delay, unfairness or incorrect procedures. Any EU citizen, business and organization can complain to the European Ombudsman. The European Ombudsman can open an investigation after a complaint or on her own initiative.

In order for a complaint to be admissible:

– The complaint must be written in one of the European official languages

 It has to be sent within two years from the moment you realise there has been maladministration

 It is not compulsory to be directly affected by the maladministration

 The institution, agency or body responsible for the maladministration must have previously been contacted

 The complaint must not have been already brought before a Court.

Even without binding powers, the rate of compliance to the Ombudsman rulings is higher than 80%. The power of persuasion and publicity of the Ombudsman explains this high percentage.

 

Public Consultations

When a policy making process is launched, the Commission often opens a public consultation. Citizens, businesses and organisations can express their opinion on the topic and their voices can be taken into consideration by the Commission before it sends its proposal to the Council and the European Parliament.

 

European Citizens’ Initiative

The adoption of the Lisbon Treaty came along with the introduction of a new participative procedure: the European Citizens’ Initiative. The aim of this initiative is to enable citizens to directly take part in the European policy-making process. To do so, citizens can propose to the European Commission to adopt legislations in its fields of power. In order to be considered, an initiative has to be signed by 1 million EU citizens from at least seven Member States countries. Once one million signatures have been reached, the European Commission is obliged to consider the proposed initiative.

 

Transparency register

 

The transparency register aims to increase transparency by enabling lobby organisations to appear in the register, which citizens can then consult.

 

Formal complaints

Different procedures have been developed to submit specific complaints:

 Complain to the European Commission – if a Member State is not implementing EU law correctly.

 Complain to the European Ombudsman

 Report fraud with EU funding/by EU staff to the European Anti-Fraud Office (OLAF).

 Contact Europe Direct if you are not sure about the complaint procedure you should use.

 

Citizens’ dialogue

The year 2013 has been characterised by what is known as the “citizens’ dialogue”, an initiative undertaken by Viviane Reding, European Commission Vice-President. These debates have been organised in different cities of the European Union in order to listen to citizens’ opinions on various themes, especially the ones regarding the future of Europe.