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Why Do Small Companies Fail To Hire Women Bosses?

November 20, 2014
Diversity & Inclusion
Well this is depressing. While you might expect entrepreneurialism and conservatism to be mutually exclusive, on one issue at least, that doesn’t appear to be the case. New research suggests Britain’s smaller companies are terrible at appointing women to their boards – just 7 per cent of the non-executive directors who joined Britain’s smallest listed companies in the past three years were female according to a survey by executive search firm Norman Broadbent.
 
To put that figure into perspective, amongst Britain’s largest companies, women now account for around 27 per cent of all non-executive board members, following three years during which getting on for one in two appointments have been of female directors.
 
Why the discrepancy? Well, the simple explanation is that three years ago, the British government warned large companies that if they didn’t start appointing more women to their boards, it would be forced to intervene and set legally-binding quotas. Companies were told to get to 25 per cent female representation on the board (including both executive and non-executive posts) by the end of 2015 or face the consequences. Smaller companies, by contrast, weren’t included in the edict.
 
The result, it seems from Norman Broadbent’s research, is that while larger companies have made great efforts to recruit more women to senior positions, smaller companies have more or less completely ignored the issue.
 
How short-sighted can you get? For one thing, Britain’s smaller stock market-listed companies have, in the past, almost always eventually been subjected to the same corporate governance requirements as their larger counterparts. The question of women on the board will be no different – it won’t be long before small companies get handed their own deadline. They would be far better off recruiting more women now, in their own time, than in a mad rush to comply with regulation.
 
However, there is a more fundamental reason that smaller companies are being stupid here: their businesses are worse off for not having sufficient numbers of women at the highest level. These companies shouldn’t be appointing more women out of some sense of duty or fairness, but because their businesses will perform better if they do so.
 
The evidence on this is compelling. Take the report published earlier this year by Credit Suisse, for example. It looked at the performance of 3,000 companies around the world over the past two years and concluded that those businesses with at least one woman on the board outperformed those with no women by an average of 5 per cent. A Thomson Reuters survey published last year found similar evidence of outperformance by companies with diverse boards – it also warned that companies with entirely male managements appeared to be more volatile.
 
There are all sorts of possible reasons for this, but the most obvious explanation of all is common sense. Businesses do best when they understand their customers. Their customers include both men and women. If your company is run entirely by one of those groups, there’s a good chance you don’t understand the other one as well as you might. Underperformance is the inevitable result.
 
By David Prosser
 
Source: Forbes

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