Selecting boards on merit: rhetoric and reality

Domini Stuart
Published in Company Director Magazine
December 2006

There is no disputing that women are under-represented on boards in Australia. What is more controversial, as Domini Stuart discovered, is why this is the case.

Mention that Australian society represents extraordinary cultural and linguistic diversity and you’ll probably elicit a yawn. Everyone acknowledges that – just as everyone knows that close to half of Australia's workforce is female. So why is it that an alien who fell to earth in the middle of the average Australian board meeting would assume that the nation was populated mainly by white males?

A recent Australian Census of Women in Leadership (CWL) conducted by the Federal Government’s Equal Opportunity for Women in the Workplace Agency (EOWA) showed that Australia's top 200 companies have 10 male board directors for every one female. At the CEO level, the ratio is 33 to one. This represents only incremental improvement in the number of women board directors since the CWL was first conducted in 2002, and no change at all in the number of female CEOs. Just six ASX 200 companies – GasNet Australia Group, Harvey Norman Holding, Macquarie Airports, Macquarie Countrywide Trust, St George Bank and Telecom Corporation of New Zealand – are led by women.

As EOWA director Anna McPhee points out, women remain largely excluded from positions which have significant influence over Australia’s business direction, economy, public policy and the community generally. Effectively, 47 per cent of Australia’s employees and 40 per cent of shareholders are under-represented at the most senior levels of business. And this is inevitably talking white male/white female; a non-white person of either sex with a voice on anything other than a Government board is rare indeed.

Nevertheless, recruitment professionals are adamant that they do not see any overt sexism or any other ‘ism’ in the course of their work. When helping a board find a new director, they say they are invariably instructed to look for the best-qualified candidate full stop.
 
“The professional recruitment process is basically the same as for a senior executive,” says Lynn Anderson, Russell Reynolds’ head of Board Services Practice in Asia. “We start by defining the requirements of the company and the board and then assemble a broad list of people who could do the job. We have a large database of executives and non executives who are either already on a board or are at that time in their career when they’re likely to be looking to become a director. We also talk to knowledgeable sources, and the board itself may have suggestions. Then we work with the nominations committee to whittle this down to a shortlist of two or three.”

Each board does, of course, need to cover off a basic range of functional skills including financial and legal expertise and the ability to manage both general and industry-specific risks. David Greatwich, director of Global Board Consulting, also emphasises the need to anticipate skill deficiencies which might arise when a director retires, or the nature of the business changes.

“If the company has a good strategic plan, the composition of the board will not be static,” he says. “For instance, if they have been domestically focused and are planning to expand overseas they may need to bring in a person with international experience.”

“Once the experience factors are covered off you need to apply a couple of screens,” says Anderson. “One is the trade-off between relevant experience and independence from major suppliers, major customers or major competitors. In Australia, in any given sector, there are probably only two or three large players, so it can be difficult to find the experience you want without some degree of conflicted interest.

“Availability is also an important screen. The perfect person for the job may have no capacity. Compliance requirements and the expectation of involvement have both risen significantly over the past 10 years, which means each board takes up more time. If you’re already on the boards of three or four public companies, questions will probably be raised about your capacity to take on another.”

Executive experience

Despite the soundness of this process, many women will fall at the first hurdle. Just 12 per cent of executive managers in the ASX 200 are women, so women are far less likely to have the depth of executive experience most boards demand. And if the boards are looking for someone with CEO experience there’s even less likelihood of the right candidate being a women.

There is then what Anderson considers the most important criterion – how someone will actually operate within the boardroom. “Debating and decision making, critical thinking and the ability to ask the right questions, and the difficult questions are essential. Something of a sixth sense about the agenda behind information that’s being presented. A board is a group process, so interpersonal aspects are also very important,” he says. “Yet this is behaviour we really only see within the boardroom, and it is very hard to assess this skill through an interview.”

“People are invited on to boards, and the people doing the inviting have to anticipate a level of comfort with the way the board functions,” says Wendy Simpson, chair of Westray Engineering and director of Allomak. “They use past experience as a predictor of future behaviour – and men feel they know men better.”

In other words, it’s the old boys’ network – very effective in keeping women out of the boardroom but not necessarily a deliberate ploy. It could simply be that male directors feel most comfortable vouching for someone they have known since school and have seen in action on other boards, particularly when so much appears to be at stake.

“You’d think that the public outcry and drama that goes on when a CEO fails and still gets a big pay out would be the most traumatic thing that could happen to a board,” says Simpson. “But even that doesn’t seem to be as personally painful as bringing in a board member who doesn’t fit.”

Sue Jauncey, fellow director of Global Board Consulting, does not see maintaining board homogeneity as a calculated strategy. However, she does agree that boards are primed to be cautious in their appointments.

“It’s a lot easier to get someone on to a board than off it,” she says. “And being stuck with an inappropriate director can be a very unsettling experience for the rest of the board, sometimes to the point of affecting the quality of their decision making and their overall effectiveness.”

A woman’s choice?

In her recent presentation to the Women, Management and Employment Relations Conference, Melanie O’Connor, managing director of The Academy Network, touched on the theory that the real reason women do not progress any further than middle management is that they do not really want to – that they have other goals in life, such as family commitments, and do not like the hurly-burly cut-throat nature of the work.

“As one CEO described it to me recently, it’s not that they can’t stand the heat, it just that the women have had a good look at what’s there, and they just don’t like the look of that kitchen,” she said. “Therefore they exercise their prerogative and opt out of the corporate leadership battles, choosing to stay at a lower level, take a less pressured job, or start their own business to give them more control over their work-life balance. Basically, this argument goes, women are simply not as hungry for the top leadership positions and therefore are not as prepared to work hard to get them.”

There are some who claim the fact that few women make it to the top is a measure of their power rather than their powerlessness. Both O’Connor and Claire Braund, executive director of Women on Boards (WOB), are quick to dismiss this argument.

“Masking lack of opportunity by calling it choice is the easy way out for both men and women,” says Braund. “It’s a very paternalistic argument used by both sexes to support the status quo because it’s easier to support it than to do something about it. But women obviously do want to sit on boards. You don’t subscribe to WOB for any other reason – and we have 3,000 subscribers. We put up one paid board position and had 500 hits by the next morning – you tell me women aren’t interested!”

However, Braund does believe that women are culturally groomed to aim low. “We talk to women who studied at Harvard, have a PhD, and are Fulbright scholars – women with so many qualifications that we have had to take the letter limit off the site – yet they’re telling us they want to be on a not-for-profit board. This is not to say this isn’t a good thing – it’s very worthy, and it’s a position that most serious directors have in their portfolio. But no man with such lofty qualifications would name a not-for-profit as his first choice.”

Sue Jauncey has found that, while men tend to overestimate what they can bring to a board, women are more likely to underestimate their potential contribution. “They think everything has to be perfect before they can put themselves forward,” she says.

There is also a lingering awareness that an assertive woman might still be perceived as aggressive, bossy and controlling - where an assertive man would be applauded for his strength and decisiveness.

Finding a balance

Beyond political correctness, is there any benefit in appointing women to a board? Braund is reluctant to talk about a specifically female perspective. “Every individual brings different skills, not just women per se,” she says. “We need culturally diverse males too. A homogenous board is less likely to look outside itself to seek a different perspective, male or female. Balance is good in all things and, while you may have ticked the box, one woman on a board does not create balance.”

Given the ease with which women can find themselves pigeonholed into ‘soft’ roles, it’s easy to understand Braund’s point of view. Nevertheless, Christopher J. Clarke, president and CEO of Boyden Global Executive Search and a visiting professor at Henley Management College in the UK, argues that females do bring a number of particular strengths to a board. In his article The XX Factor in the Boardroom: Why Women Make Better Directors, he lists superior evaluation of people; managing ego and calming aggression in others; team maintenance and communication skills; a female perspective on products, services and the marketplace; and balancing short term corporate objectives with wider societal issues as qualities that women can bring to a boardroom.

Research conducted in 2004 by Professor Susan Vinnicombe of Cranfield Business School found that the Financial Times top 100 UK boards with female directors scored significantly higher on good governance. The 69 companies with women on their boards also had a weighted average return on investment of 13.8 per cent, versus 9.9 per cent for the 31 all-male boards. In an article published on the CEO Forum website, Jane Allen of Egon Zehnder International cites a November 2001 US study which showed that the Fortune 500 firms with the best record of promoting women to senior positions, including the board, were more profitable than their peers. She also refers to evidence that boards with a diverse group of directors consider a broader range of issues and are more likely to use non-financial measures such as customer satisfaction, employee satisfaction, gender representation in management, improved community relations, innovation and connection to a wider customer base to evaluate a company’s performance.

The level of discrimination

According to Braund, many young women do not see lack of board representation as a problem. “They say they’ve never been discriminated against, and that things are changing,” she says. “Generally, that means they haven’t reached the level at which discrimination becomes an issue.”

It may also mean they are not aware that, at the current rate of change, we will not achieve a gender balance until some time around the turn of the next century. “We really need to take a fairly tough approach,” says Braund. “WOB’s strategies include small, targeted networks which bring past, current and aspirant directors together, helping women to get an insight into board culture.

“This is networking outside of the normal networks. While women’s networks are valuable, they won’t necessarily get you onto boards – it’s like saying ‘I want to be a radiologist so I’ll network with the engineers’.”

Other WOB events include high-profile mentoring and ‘how to’ seminars.  “We partner with major corporates and work really closely with our target market,” Braund says. “We enjoy terrific support from male directors whom we approach to act as mentors at our events, and to introduce us and members of the network to the 'boys club'. Often it is just a matter of asking.”

Wendy Simpson helped prepare herself for the boardroom by doing the AICD Company Directors Course. “In my career in executive employment I moved industry a number of times,” she says. “In order to succeed I did a lot of reading and prepared myself for the language, the philosophy and the new criteria so that I was aware of what I was going into. But the most fascinating aspect of board life is that most of it happens behind closed doors. There’s an air of mystery around the boardroom, and what happens inside is confidential. So how can you get a sneak preview? There’s plenty in the literature to help you perform well and make decisions at executive level but there’s very little at board level, and that’s why I think the AICD course is so useful.”

Simpson believes that higher levels of self assessment might lead to greater awareness of ways in which boards need to change – and not just in terms of diversity. “I’ve spent a lot of time with Richard LeBlanc (author of Inside the Boardroom),” she says. “He argues that boards need to reconfigure according to the stage of business – the same people shouldn’t necessarily be staying there year after year through cycles of boom and bust, competitiveness and deregulation, and challenges like moving offshore. Self evaluation means a willingness to review how well we’re doing, and whether there’s a better person for the job – and even accepting that is a big step for some directors. But it’s in these circumstances that the board may be more open to a new set of skills. Transition periods are often the times when boards are more open to women.”

Alison Gaines, Global Practice Leader Boardroom Consulting at Gerard Daniels, says there is some good news – governments are leading the way on diversity, gender diversity, ethnic and race diversity and regionalism. However, she also points out that representation is an underlying criterion of public policy, and that government boards also tend to be much larger.

“By comparison, the boards of companies are becoming smaller – the average would now have around six directors and less for private companies” she says. “Smaller boards, focused on commercial criteria and with a number of board roles held by executive directors, will be less driven to take diversity into account when deciding their remaining non executive director roles.”

One question remains – could the real obstacle be that men are only paying lip service to supporting the infiltration of women into the boardroom? “If you ask some of the more conservative men if they can please tell us how more women can get invited on to boards, you get the impression that they’re not even conscious of the limited circles in which they canvass for names, or that it can come across that they might not really want women to know,” says Simpson. “Some of my male colleagues have said that they’re happy with affirmative action and declarations that women need to be represented, and that they’re even willing to step aside a little and not fight women for every executive position. But that a place on the board is seen as a reward for years spent in the executive ranks, and they’re thinking ‘why should we give a reward like this up?’”


A global issue

Just 8.7 per cent of Australia's board directors are women; remarkably, this puts us ahead of much of the rest of the world.

Patrick O’Callaghan and Associates, in partnership with Korn/Ferry International, has found that, over the past 12 years, the number of female directors on the boards of the largest 300 Canadian companies has fluctuated only slightly between six and eight per cent.

In the US, the number has been steadily increasing to 14.7 per cent, and in the UK to 11.4 per cent, but research by the European Professional Women's Network shows that women occupy only 8.5 per cent of European corporate boardroom seats – an increase of just 0.5 per cent from 2004. Norway is leading the way at 28.8 per cent, though this follows the introduction of a controversial legal quota of 40 per cent female representation on the board of public companies. They’re followed by Sweden (22.8 per cent), Finland (20 per cent) and Denmark (17.9 per cent).

“Women today are under-represented in corporate leadership and director positions – not only in Canada, but globally,” says Beverly Topping, president and CEO of Canada’s Institute of Corporate Directors. “From my perspective and others’, it is clear that many companies have yet to understand the compelling business case for diversity and for women’s advancement.”

AICD’s views on board diversity

The AICD believes Australian boards need to be multi-skilled and have competencies that match the strategic direction of the company to maximise company performance. Different professional skills, industry backgrounds and life experiences can all contribute to a more fertile mix in the boardroom. While the issue is about skills balance rather than gender balance, AICD recognises there is a marked lack of women on boards in Australia. The AICD feels this demonstrates that the Australian business community is failing to capitalise on the skills, talent and knowledge of a large proportion of corporate Australia.

AICD believes many boards are taking this challenge seriously and the selection of board appointments has reached a new level of professionalism. However, current director selection processes can fail to capture the wider ‘talent pool’ comprising varied skill sets and business backgrounds. The AICD encourages its members and the wider business community to ‘look outside the box’ and consider options other than traditionally accepted criteria for talent, such as the ex-CEO pool, when selecting new directors. This will enable groups less represented on today’s boards to be accessed.

The AICD generally recommends professional executive search teams be appointed and charged with conducting ‘full-scale searches’. However, the use of such advisers depends on the nature of the business and the skills that are needed on the board at that time. If an executive search firm is used the results of these searches then need to be presented to the chairman and other boardroom members, rather than handing over a list of names. This would avoid boards of directors ‘going with the one they know’.

When potential candidates are not known to existing directors, reference checking by a professional is invaluable. The AICD recommends companies consider implementing an independent nomination committee to ensure the appointment process is managed in an independent, conflict-free manner.

The AICD encourages all aspiring directors to seek board advisory and/or not-for-profit appointments to provide them with the experience as well as a platform from which they can profile their skills and attributes.

Additionally, interested parties should continue to participate in a variety of extra-curricular activities, such as industry bodies or institutes, educational, arts and medical associations, to demonstrate their commitment and contribution to society. Not only will their skills and expertise be recognised, so too will their commitment to voluntary positions.

Aspiring directors are advised to consider director specific programs. The AICD’s Director Essentials Course and flagship Company Director Course provides quality education on the role, evolving environment and responsibilities of the board.

In 2006 AICD has supported scholarships for women across Australia interested in pursuing director development, through a number of networks including Women On Boards, Rural Industries Research and Development Corporation and Department of Agriculture, Fisheries and Forestry. Members are also encouraged to utilise the AICD Directors register, which houses aspiring directors’ curriculum vitae. Finally, we encourage existing directors to act as mentors where possible, sharing their skill, expertise and experience with younger, aspiring directors.

Resources for aspiring directors

 

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