Balanced boardrooms attract the best candidates and perform most strongly, says Philippa Foster Back

September 2011 was the deadline for the call from Lord Davies – the former chairman of Standard Chartered bank and a trade minister in the Gordon Brown government – to chairs of UK listed companies to announce “aspirational” gender diversity goals, and in particular to increase the proportion of female board members. Davies made the call in his Women on Boards report, published in February.

Although a statistic so often quoted that it has lost its intensity, it is still shocking that despite women making up just over half the workforce in the UK, only 13.9% of FTSE 100 board members are women (dropping to 8.7% for the FTSE 250). Worse still, around one fifth of FTSE 100 boards and over half of FTSE 250 boards have no women board members at all.

The business case for gender diversity on boards has been well versed. Research shows that companies with women in senior management positions score higher in critical measures of organisational excellence and financial performance than companies with no women at the top.

But the reasons for encouraging women to take senior management positions are not just financial. Gender diversity has an ethical driver and can strengthen a company’s ethical performance too. 48% of respondents to the consultation for Lord Davies’s review felt that greater gender diversity in senior positions would change corporations’ behaviour.

Diversity: an ethical issue

First, diversity in the boardroom sets a leadership example and sends a powerful signal to all employees about the company’s approach to equal opportunities. The tone from the top influences and encourages decisions made throughout an organisation.

Second, supporters of diversity point out that having a range of viewpoints and perspectives helps to avoid “groupthink” and so allows greater speak up and challenge. It puts a company in a better position for understanding the risks and opportunities that it faces – including integrity risks.

Research by the Institute of Business Ethics (Employee Views of Ethics at Work: The 2008 National Survey) has found that female employees are generally stricter in their ethical standards and less likely to tolerate unethical workplace practices than male employees. The survey also suggests that women are more likely to report misconduct than their male peers.

Research suggests that women bring different perspectives to the boardroom in terms of leadership approach and priorities and are more likely to take stakeholder views into account. They are more values driven than men and they are more likely to ask difficult questions and less likely to tolerate misconduct.

Diversity and CR performance 

Studies have explored the effect of board diversity on social performance and reputation. For example, women directors have been found to have more diverse expertise than men and this enhances the board’s ability to effectively address corporate responsibility among other things.

Also, the number of women on a board may act as a signal to external observers that the company pays more attention to diversity and is therefore more socially responsible. Fortune 500 companies with a higher percentage of female directors were more likely to appear on Ethisphere Magazine’s “World’s Most Ethical Company” list.

Companies that make an ethical commitment to diversity are making an undertaking to recruit and treat employees fairly and without discrimination.

In his Women on Boards report, Lord Davies highlights an Equality and Human Rights Commission statement that it will take over 70 years at the current rate of progress to achieve an equal number of female directors of FTSE100 companies.

What now?

Despite all the benefits, why are there so few women in boardrooms and how can this situation change?

Lord Davies found that two major issues kept coming up in the consultation for his report.

• A lack of flexibility around work/life balance particularly around maternity leave and young families.
• The perception of a traditional male cultural environment, the “old boys’ network” and a lack of networking opportunities for women.

Companies need to recruit significant numbers of female board directors in the coming years to avoid the threat of legislation.

However, the key challenge is not just to get women represented at board level but about developing a pipeline of female talent. The 2010 Female FTSE Board Reportfound a strong correlation between companies with gender diverse boards and those with relatively high proportions of women on executive committees.

Gender diversity is an ethical issue, and nowhere is it more important for ethics to be taken seriously than at the very top of an organisation.

Cultural shift

As with any aspect of business ethics that involves a cultural shift in attitude, leadership from the top is of critical importance. Positive practices stand little chance of developing fully if senior management, especially the CEO, is not committed to embedding the company’s ethical values into the way they do business themselves.

Placing gender diversity onto the company’s strategic agenda and implementing more diversity measures will help to encourage more women into top management positions.

Clearly, companies that are serious about embedding ethical values, such as respect, fairness and responsibility into their business need to ensure that diversity is on the board agenda. They also need to cast their nets wide and break the mould to search for a broad range of backgrounds when recruiting to board level.

It is time for companies, and their boards, to take this matter seriously, not just to avoid legislation, or to ensure they fulfil corporate governance guidelines, but because ensuring that the best people lead our companies is the right thing to do.

Philippa Foster Back OBE is director of the Institute of Business Ethics. 

For further information see IBE Briefing: Business Ethics and Board Diversity