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1 big reason there are so few women on US corporate boards? Directors’ egos

February 14, 2017
Diversity & Inclusion

From Neil Armstrong’s walk on the moon to the Wright brothers’ flight, Americans take a lot of pride in being the first to achieve major milestones.

Yet when it comes to board diversity, that pioneering spirit seems to be waning, according to a study released Wednesday by executive search firm Egon Zehnder. Ironically, one major factor holding U.S. boards back might be the very thing that drives many to achieve: ego.

The 2016 Global Board Diversity Analysis, which looks at board data from 1,491 public companies across 44 countries, finds that, while the U.S. initially led the charge in diversifying corporate culture, it has fallen behind much of the developed world over the past four years.
In 2012, women accounted for 19% of board seats on U.S. companies, while women in Western Europe held about 15.6% of seats. Four years later, the U.S. has seen incremental progress—women now make up about 20% of directors—while that percentage has jumped to 25.6% in Western Europe.

Part of the shift can be attributed to the board quotas that have been implemented in major European economies. For example, since government-enforced quotas were passed, the share of women on boards in Italy has jumped from 8% in 2011 to 32% in 2016 and from 21% to 38% in France over the past four years. In Germany, women made up 9% of board members six years ago, a number that has since increased to 28%.

While quotas helped drive change in Europe, they don’t explain the lack of advancement in the U.S. There are a number of reasons why America still has so few female directors—the dearth of female CEOs in the Fortune 500, for example—but one factor that’s often overlooked is the particular way Americans think about board directorships, says Carol SingletonSlade, who leads Egon Zehnder’s U.S. boards practice.

“There’s a cultural mindset in the U.S. that if you exit a board, it’s a sign of failure,” she says. “There’s a lot of ego tied up in tenure on boards.”

Indeed, the average U.S. board member is older and has a longer tenure than those of most other developed countries, according to an August 2016 investigation by the Financial Times, which used data from the shareholder advisory group ISS Analytics. The average U.S. board member is about 63, while the average tenure is roughly 8.5 years. Directors in most Nordic and European countries are in their mid-50s and have an average tenure of six years or so.

U.S. boards are “not taking the time to self-regulate,” says SingletonSlade.

One way to do this is to set term limits, but even that may not be sufficient, she says, as there are undoubtedly individuals who bring a lot to the table even after a decade of service (and at a quarter of major companies, directors serve for that long). What boards need to do is get rid of those “nice, collegial, not particularly impactful directors,” she says.

Brande Stellings, the vice president of corporate board services at diversity consultancy Catalyst, points to research the firm did in 2015 on Canadian boards as a case study for how to speed up progress in the U.S.

The study (which looked at 131 firms) found that the companies with the most board turnover had the most diverse boards, adding an average of one additional woman to the board over five years. Similarly, term limit policies were associated with greater board diversity. Companies that had both (natural turnover and term limits) had the most diverse boards of the group.

Women made up about 18% of Canadian board directors in 2014, but 24% in 2016, a jump that Stellings attributes to Canada’s “comply or explain” policy, which requires companies to either put a diversity policy in place or explain why they don’t have one. She

By Valentina Zarya

Source: Fortune

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