Gender Equity Investing

Women on Boards Make Slow but Steady Gains in 2018


When it comes to having women on boards, the glass ceiling may be starting to crack, but it’s not yet ready to shatter.

The first half of 2018 has seen a shift in boardrooms around the country—since January, nearly a third of new board seats at the country’s 3,000 largest publicly traded companies have gone to women, according to Institutional Shareholder Services (ISS). That’s the largest amount in at least 10 years, and it could make 2018 a record year for women joining boards.

That said, a closer look at this progress suggests that too much celebration may be premature, considering the numbers of women in leadership positions on these boards and what some are calling the “glacial pace” toward gender parity in this arena.

Hitting Obstacles on the Path to Gender Diversity in the Boardroom

Those attempting to promote women’s presence on corporate boards face enduring barriers. For women, neither getting into the boardroom nor gaining leadership positions once there is an easy task. For example, many directorships require previous experience on a board or as CEO of a company, a requirement that keeps out many women, who have historically struggled to reach the top of the C-suite, too.

Just how many women occupy the highest-status seats of corporate boards? ISS finds that only 10% of lead independent directors are women, while only 4% of boards have a female chair.

Even as companies begin to focus on recruiting women to their boards, it could take years before that focus translates into significantly greater diversity. That’s because the average male director maintains his position for over nine years, and male directors tend to hold their positions for nearly three years longer than their female counterparts. Even if women and men joined boards in equal proportions, it could take more than four decades for the country’s corporate boards to reach gender parity, calculates the US Government Accountability Office.

Widening the Cracks in the Glass Ceiling

Despite the slow progress toward corporate gender equality, seeing women on boards has become a priority for many investors in recent years. Last year, State Street Global Advisors voted against the reelection of directors at 400 companies without women on their corporate boards, and in February 2018 BlackRock updated its proxy voting guidelines to reflect its expectation that companies it invests in should have at least two women on their boards.

While it’s not uncommon to position corporate gender parity efforts in the context of social sentiment or the #MeToo movement, research continues to suggest the tangible business benefits of gender diversity. McKinsey, for example, has reported significant research on gender diversity, and a recent study by MSCI found that “having three women on a corporate board represents a ‘tipping point’ in terms of influence, which is reflected in financial performance.” More specifically, US companies that entered the five-year period between 2011 and 2016 with three or more female directors saw median gains in earnings per share (EPS) of 37%, while companies that entered the same period with no female directors saw median changes of -8% in EPS. MSCI also found that companies that added women to their boards between 2011 and 2016 experienced median gains in EPS of 22%, while companies whose boards lost women between 2011 and 2016 saw median gains in EPS of only 11%.

As Vanguard wrote in a 2017 open letter to directors of public companies worldwide, having female board members is an “economic imperative, not an ideological choice.”

Companies not currently taking the initiative to increase gender diversity on their boards may soon face regulatory pressure, at least on a state level, to fast-track board changes. In August, the California legislature passed a bill that would require all publicly traded companies headquartered in the state to have at least one woman on each of their boards by the end of 2019. Companies that fail to comply would face financial penalties. The bill is the first of its kind in the United States, though several European countries have similar initiatives in place.

While the pace of change may not be as fast as many would like, the value of having women on corporate boards is making itself clear. As investors continue to make the business case for gender diversity in the boardroom, progress is likely to continue—slowly but surely.

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