Good Business: Gender Diversity at the Top

Good Business: Gender Diversity at the Top

Gender diversity at the leadership level is recognized as good for business, with hiring, appraisal and succession planning recognized as a critical development strategy. Successful companies that lead by example choose to work with suppliers (from media and marketing, through to executive search) that demonstrate their own development and understanding of gender diversity.

Why is gender diversity important?
‘Companies with women on their boards deliver a significantly higher Return on Equity (ROE) than those without’ (1), according to the Reibey Institute. Its ‘ASX 500 – Women Leaders Research Note’, shows the five-year ROE for companies with women directors to be 9.25%, compared to 0.5% for companies without women directors. And a study (2) organized by Finnish Business and Policy Forum EVA, showed a clear correlation between women in management and profitability, ‘which cannot be explained by differentiation of companies or fields of business; a similar effect appears to exist with women on boards of directors’. Researchers Annu Kotiranta, Professor Anne Kovalainen, and head of research Petri Rouvinen, investigated the profitability of companies in Finland run by women, using return on invested capital as the measure.

As the Australian Government points out: ‘As a democratic society it is important that the issues, perspectives and needs of women are equally represented in decision-making processes. Greater gender diversity in leadership roles improves decision-making, which in turn benefits the productive capacity of organizations and, more broadly, the economy.'(3)

And at the ‘The Gender Agenda: Why Sex Matters’ debate at the 2010 World Economic Forum(4), Sir Martin Sorrell (CEO and founder WPP) said: ‘It’s [accessing the talent of women in business] about good business because we have better recruitment, more motivated employees, better engagement with clients – and our business, very interestingly, is better managed, I believe, by women than by men.’
In 2010, 72% percent of respondents to a McKinsey survey believed there was a direct connection between a company’s gender diversity and its financial success.(5)


So, what’s being done – and is it working?

Legislation requiring a higher percentage of female directors continues to be passed by several countries. For example, while the European Commission is considering a voluntary code for public companies to have women occupy 40% of directorships, Norway imposed quotas in 2004, requiring all boards to have a minimum of 40% women by 2008.

France passed a bill in January 2011, requiring 20% of listed companies’ board directors to be women by 2014, rising to 40% by 2017.

The Australian Government has committed to ‘a target of 40 per cent representation for both women and men on Australian Government boards’ by 2015. According to its ‘Gender Balance on Australian Government Boards Report 2011-2012’(6):

•    As at 30 June 2012, women held 38.4% of Government board appointments, up from 35.3% in 2011.
•    Over the 2011-2012 financial year, 41.0% of the 1633 new board appointments were awarded to women.
In 2006, Québec (Canada) passed legislation that required gender parity on the boards of government-owned enterprises. The 50% target was reached in December 2011.


However, the Grant Thornton International Business Report(7) shows:

•    Women hold one in five senior management roles globally, very similar to the level observed in 2004;
•    Businesses in Russia, followed by Botswana, the Philippines and Thailand have the most women in senior management, while those in Germany, India and Japan the least; and
•    Less than one in ten businesses has a female CEO, with women largely employed in finance and human resources.

In addition, the number of women executive directors in the FTSE 100 companies has increased from 13 (in 1999) to 20 (in 2012), compared with 285 male executive directors, according to a report by Cranfield University School of Management(8). As the report points out: ‘When we speak about a target of 25%, as in the Davies report recommendations, or the 40% quota in Norway, we mask the increasingly wide chasm between the numbers of women non-executive directors (143 women – 22.4%) compared with the numbers of women executive directors (20 women – 6.6%).


So, who’s getting it right?
Globally, fewer than one in 10 businesses are led by women, according to Grant Thornton International Report(9), ‘indicating that it is even harder for women to reach the very top of the business world.’

Meanwhile, a 2012 Catalyst report found the percentage of board seats held by women(10) ranged from 40.1% in Norway to 1.9% in South Korea (all numbers are percentages):
•    Finland: 24.5
•    United States: 16.1
•    United Kingdom: 15.0
•    Turkey: 10.8
•    Canada: 10.3
•    Australia: 8.4
•    Mexico: 6.8
•    Russia: 5.9
•    India: 5.3
•    Brazil: 5.1
•    Chile: 1.9


Comparing CEO numbers, Catalyst found percentages of 3.0% in Australia, 6.1% in Canada, 5.0% in Israel, 4.4% in South Africa and 4.0% in the US. However, the percentages for executive officers/ corporate officers/executive managers were higher in the same regions:
Australia: 8.0%; Canada: 17.7% ; Israel: 18.1%;  South Africa: 21.6%; US: 14.1%


Looking at the companies that are getting it right, here is the top ten list from the 2012 DiversityInc Top 10 Companies for Executive Women(11):

1.    PricewaterhouseCoopers
2.    Kraft Foods
3.    Ernst & Young
4.    Sodexo

5.    Procter & Gamble
6.    Kaiser Permanente
7.    American Express
8.    Johnson & Johnson
9.    Deloitte

10.    Automatic Data Processing


What next?
The challenges, which are local and global, include finding positive, actionable ways to progress. Diversity needs to become a business priority, with a consistent policy for gender diversity.


Looking at the subject from the female perspective, Facebook COO Sheryl Sandberg (TED talks, October 2010 episode(12)), emphasized the need for women to ‘sit at the table – don’t underestimate your abilities… Men attribute success to themselves, while women attribute it to external factors.’ She referred to a Harvard school study, which showed that success and likeability are positively correlated for men and negatively correlated for women.


And it seems there is some progress. According to McKinsey research: ‘a growing number of women, both in senior roles and among the rank and file, are finding their voices and inspiring others to achieve progress.’(13) The report notes that of the 235 European companies surveyed, more than 60% ‘have at least 20 gender diversity initiatives in place’.

• Setting priorities
The McKinsey report suggests that four priorities ‘for committed leaders’’ should include:
•    Treating gender diversity in the same way as other strategic business initiatives, with goals and monitored plans, over many years.
•    Requesting and discussing data, and identifying ‘pain points’ by business, geography, and function.
•    Encouraging top executives to sponsor future leaders, including women.
•    Raising awareness of the requirements and ‘look’ of a diverse work environment, and celebrating successes to reinforce the mind-set shifts.

At the 2010 World Economic Forum meeting in Davos, Switzerland, the CNBC’s panel debate ‘The Gender Agenda: Why Sex Matters’, centred on the question(14): With men at the helm of most large companies, could the key to gender equality lie in convincing male CEOs their companies will perform better with more women at the top?
Among some of the suggestions:

• Explain why promoting diversity is important for the particular business and industry.
• Set quotas, milestones and measurable objectives, and keep to them.
• Recognize the cultural challenges held by both men and women in business.
• Develop basic processes, including hiring, appraisal and succession planning.

• Hiring top talent
It is important to keep in mind that corporate diversity includes culture and gender. The challenges of hiring top talent while adhering to the company’s diversity principles may necessitate using executive search companies.

In the UK, a May 2012 report(15) released by the Equality and Human Rights Commission (EHRC) concluded that ‘the appointment of women to FTSE 350-listed non-executive director roles is being held back by selection processes which ultimately favour candidates with similar characteristics to existing male-dominated board members.’

In the report (produced by the Cranfield School of Management for EHRC), key findings included ‘heightened awareness of the importance of gender diversity on Boards within their firms and among their clients’ by the search consultants interviewed for the report. However, the report also found that ‘these practices did not appear to be embraced to the same extent in all search firms.’

Among the reports recommendations:
•    Executive search firms (ESFs) need to invest more time into developing relationships with women

in the pipeline.
•    ESFs could provide more guidance and mentoring to female candidates undergoing an appointment

process. In addition, once women are appointed, both search firms and Chairmen need to pay
more attention to induction and ‘onboarding’ processes and ensure that they are gender-inclusive
•    Investors need to play a bigger role by putting pressure on companies to have gender-balanced

Boards.
•    There needs to be more emphasis on having women in executive roles. Several ESFs stressed that

the executive and non-executive pipelines of female talent are closely related and argued that companies should support women’s careers in order to ensure that sufficient women come through at the top of their executive ranks.
•    More transparency and documenting of best practice and initiatives around gender diversity by ESFs are needed. Not all search firms invest the same effort into documenting and formalising best practice internally.
•    When assessing candidates, Chairmen and Nomination Committees need to shift the emphasis from prior experience to underlying competencies. Search consultants play a critical role in supporting this shift of mindset among their clients.

• The search companies
Commenting on the Finnish Business and Policy Forum EVA study(16), board member Soili Suonoja commented that she was ‘upset whenever people who have not made efforts to increase participation by women in their own companies trumpet the cause of gender equality. The proportion of women on corporate boards of directors is not a measure of equality in her view, because day-to-day corporate decision-making takes place on management teams.’

In the executive search industry, the proportional gender diversity on company Boards and in top management can be difficult to assess, partly because of the various corporate structures.


However, some of the major firms in the executive search industry show various proportions of gender diversity (this information provided on each company’s website as of early December 2012):

•    Boyden’s President and CEO is a woman.
•    At Egon Zhender, Damien O’Brien is the company’s CEO and Chairman.
•    Heidrik & Struggles’ company leadership has three men, while its Board of Directors has nine members, two of whom are women.
•    IRC Global Executive Search Partners’ alliance has 17 out of 42 member firms owned and managed by women, and  its Board of Directors has had a female president for the past four years.
•    Korn Ferry’s executive team has 12 members, including two women, while the company’s Board of Directors has seven members, one of whom is a woman.
•   Ogders Berndston’s three board members include one woman, and of its four managing directors, one is a woman.
•   Spencer Stuart’s Executive Team has 20 members, of whom two are women. Stanton Chase International’s Board has four members, including one woman.


Conclusion
Along with cultural diversity, gender diversity is an important policy for both local and global businesses, increasingly acknowledged to contribute to better management and higher profitability.

Executive search companies can enhance and strengthen a company’s diversity policies, by introducing qualified top talent, and influencing the internal hiring decisions and policies for gender diversity.
Search consultants who demonstrably show that same gender diversity within their own companies may be best positioned to understand the complexities, and challenges of hiring, managing and retaining diverse executive talent.
Their experiences will add invaluable knowledge and understanding to the complex issues – and the future business advantages – of creating and nourishing their clients’ positive gender diversity policies.

 

About IRC
IRC Global Executive Search Partners is a market leader in the global executive search industry with a track record of more than 25,000 completed assignments for 1,000+ clients in almost every conceivable industry segment and function. Our clients range from large multinationals to middle market companies that enjoy the advantage of working with leading local firms around the globe, providing them access to expert local market knowledge, the agility and commitment of owner operated firms and the global reach of a strong alliance.
With a growing roster of leading executive search firms across Europe and the Middle East, the Americas, Africa, Asia and Australia, IRC Global Executive Search Partners has more than 280 accomplished executive search professionals in 6 continents, 35+ countries, 70+ offices and 40 member firms. Ranked among the world’s ten largest executive search alliances, IRC Global Executive Search Partners has been providing consistent and high-performance executive search solutions to its clients for the past nineteen years; globally connected and locally committed.

Footnotes:
1 Reibey Institute, ASX 500 Women Leaders: Research Note, Riverview, NSW, 2010. Australia-based Reibey Institute is an independent, not-for-profit research centre.
2 Helsingin Sanomat International Edition – Business & Finance Study: companies managed by women more profitable than those run by men. Analysis focuses on return on capital. The study was conducted on 14,020 Finnish limited liability companies, which employed at least ten people in 2003.
3 Australian Government’s Department of Families, Housing, Community Services and Indigenous Affairs Office for Women: ‘Gender balance on Australian Government Boards Report 2011-2012’
4 Women at PWC/gender agenda CNCB debate. ‘In a televised debate from the World Economic Forum in Davos, Switzerland, CNBC’s Ross West- gate challenged two teams of global business leaders to convince the audience to move beyond good intentions and toward effective action on gender equality.’ PWC.
5 Moving women to the top: McKinsey Global Survey, October 2010
6 The Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA)
7 Grant Thornton International Business Report. Women in senior management: still not enough. March 2012. The data in this report are drawn from 6,000 interviews with business leaders conducted between November 2011 and February 2012.
8 The FTSE female index. Cranfield University School of Management.
9 Grant Thornton International Business Report. Women in senior management: still not enough. March 2012.
10 Catalyst: Women on Boards. August 2012.
11 The DiversityInc Top10
12 Sanberg, Sheryl 2010. ‘Why we have too few women leaders’. TED talks. tv.com TED talks
13 McKinsey Quarterly: The global gender agenda. November 2012
14 Women at PWC/gender agenda CNCB debate. ‘In a televised debate from the World Economic Forum in Davos, Switzerland, CNBC’s Ross West- gate challenged two teams of global business leaders to convince the audience to move beyond good intentions and toward effective action on gender equality.’ PWC.
15 Equality and Human Rights Commission. Research report 85. Gender Diversity on Boards: The Appointment Process and the Role of Executive Search Firms. Elena Doldor, Susan Vinnicombe, Mary Gaughan and Ruth Sealy. International Centre for Women Leaders, Cranfield School of Man- agement Cranfield University.
16 Helsingin Sanomat International Edition – Business & Finance Study: companies managed by women more profitable than those run by men. Analysis focuses on return on capital. The study was conducted on 14,020 Finnish limited liability companies, which employed at least ten people in 2003.

 

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