The Supply of Women Corporate Directors

In order to increase the supply of women directors, we need to know what are the most significant causative factors restricting or constratining the available number of female candidates and prospects. What is causing the fact that only 14-16% of the top corporate board searts are occupied by women?

To evaluate the supply side, we can consider that there are 6 possible economic actors that might influence the market by advancing women to director-level leadership. The first three of these are:

  • Board members -- corporate director, often considered synonymous with men, who might search out women candidates among their business or professional associations.
  • Recruiters -- those who conduct director searches and either have extensive rolodexes with women candidates or do not
  • Advocates -- usually women's groups which survey boards, research boards, reward selected companies for diversity, and generally try to influence or intimiate the markat into adding more women.

These three economic actors tend to focus on the demand side: trying to persuade or push boards or executives to "demand more" women, to make more room available for women candidates, and in some cases pushing forth legislation that mandates boards, councils, or commissions "do more" to add women to their rosters.

Why would boards, recruiters or advocates either: (a) limit the supply or (b) fail to increase the supply of women candidates? If we assume they were rational economic actors, either they chose or could not effect the supply of women candidates? So, what IS the case?

The argument that boards chose not to increase the supply includes the following reasons:

  • boards do not want women directors
  • they do not want women at the current price
  • they do not want women for other factors they would have to sacrifice (i.e., camaraderie)
  • they do not want unqualified women directors
  • they do not want inexperienced women directors
  • they do not know where to find qualified women directors

The argument that recruiters chose not to increase the supply include these explanations:

  • recruiters benefit significantly from recruiting "the high price" women candidates
  • they are more interested in the more profitable executive searches rather than board searches.
  • they do not know where to find qualified women candidates

The argument that advocates do not increase the supply include the following reasons:

  • advocates gain attention and sponsorship for surveys about "how few women" make it to leadership
  • they benefit from giving out awards to a select few "leading boards"
  • they benefit from gathering together women who want to be named to board roles

Case Study: Iowa HF 243: The State of Iowa passed legislation mandating "Gender Balance on City and County Boards." HF 243 was signed by Iowa Governor Chet Culver May 26, 2009, requiring city and county boards (where women presently occupy 20% of the seats) to have "gender balance" -- presumably 50% -- beginning January 1, 2012.

A significant exemption was added, however: If a council or commission "made a good faith effort to appoint a qualified person" over a 90 period, but was not able to locate a "compliant appointment," then the appointive board, commission, committee, or council of a political subdivision would be presumed to be gender balanced.

Case Study: California Registry of Distinguished Women and Minorities: The Corporate Governance Parity Act of 1993 established a "registry of distinguished women and minorities" where diversity candidates interested in board roles could add their information and from which California companies and organizations could select board candidates for consideration. SB 545 was initiated by San Diego State Senator Lucy Killea, (39th District) and co-authored by Senators Hayden, Torres, and Watson. It became law September 27, 1993 amd was adminsitered by the Secretary of State beginning January 1, 1995.

In June 1998, State Senator Quentin L. Kopp (I-San Francisco) proposed a law, SB 16525, to relocate the registry to one of the University of California or California State University system campuses. The following year, California State University, Fullerton was selected to maintain the California Corporate Board Registry under the direction of the Communications Department with S. Irene Matz, Ph.D. serving as the director. The registry was disbanded in 2005 due to CSU Fullerton financial limitations, having reached a total of 400 names at its peak.

Case Study: California Prop 209: California Ballot Proposition 209 was approved by the voters in November 1996, amending the state constitution to prohibit the consideration of race, sex, or ethnicity in the operation of public employment, public education, or public contracting (aka, the California Civil Rights Initiative). A similar voter initiative amended the state constitution in Michigan: Proposition 2 (the Michigan Civil Rights Initiative) was passed in November 2006.

In both cases, the prohibilition applied to any public institution, and thus was "limited to the state itself, any city, county, city and county, public university system, including the University of California, community college district, school district, special district, or any other political subdivision or governmental instrumentality of or within the state."

The legislative above approaches seek to increase the supply of women on boards by mandating some preferred quota by fiat. The laws presume that members of society are exhibiting some "bad" behavior that is so evil that it is in the community's essential best interests to outlaw or prohibit it in order to attain some prefered status. It also presumes that the community at large will be willing delegate the enforcement of the law, and/or subsidize the oversight, in order to benefit from a shared public governmental action, rather than leave the corrective efforts to the marketplace at large.

The research suggests that the efforts of boards, recruiters and advocates appear to be insufficient.

The other three economic actors must be considered as well. They are:

  • Women -- individual female candidates and prospects
  • Educators -- academic and professoinal institutions that promote effective corporate governance
  • Shareholder and investors -- those who are represented by corporate directors

These other economic actors have the capacity to truly impact the supply side even more directly than the first three. They have the capability to persuade or push women to rise to leadership roles and become qualified candidates for corporate governance roles.

It is not so clear how effective the other three economic actors are at increasing the supply of competent, experienced women directors.

Why might women cause the supply of women candidates to be limited?
  • they did not want to participate in the top levels of corporate management
  • they were unsure or unclear of the roles/responsibilities of a corporate director
  • they saw only the risk of a corporate board role
  • they did not want to be a director at the current price
  • they did not want to be a director in light of other opportunity costs (i.e., family or personal time)
  • they did not know what was required to be qualified as a director (i.e., knowledge and skills)
  • they did not know how to become qualified as a director (i.e., education or experience)
  • they did not know who had the information and how they could obtain it
  • they opted for "easy paths" typical of female-only markets (i.e., non-profit boards)
  • they persisted in the beliefs that "barriers" and male bias remained
Similar points could be made about how educators chose or could impact the supply:
  • Educators might only market their products/services to existing/sitting directors
  • they might only price their training services to the top tier corporate marketplace
  • they might avoid offering governance within graduate degree programs because students at that level do not purchase other services (i.e., acocunting, compensation, legal)
Similar points could be made about how shareholders and investors chose or could impact the supply:
  • Shareholders only vote on the issues presented to them by sitting boards
  • they have delegated decision-making to insitutional shareholder groups
  • they do not perceive the risks of addressing the issue until the company is harmed
  • they do not perceive the rewards of addressing the issue

Women, themselves, have the greatest opportunity to impact the supply of candidates for board roles through their own actions to address: competency, experience, training, and expertise. Many women today continue to "opt out" or quit the executive and leadership career track. They choose instead to simply stay at their current level of upper middle management, providing supporting services rather than step out of their comfort zone and push the envelop. Women could take greater advantage of the available director and corporate governance training that currently exists. They could increase their exposure to directors within their own firms in order to learn more about governance roles and responsibilities.

Women could increase their participation in active investment entities where boards are formed early in the life of entrepreneurial entities. Women could expand their governance experience on loan committees, angel investment groups, venture capital groups, bank boards, and at entrepreneurial firms.

Women who over-commit on not-for-profit boards could recognize that they are buying into an alterntive good or a "substitute good" for corporate board service. Non-profit roles do not provide corporate governance experience: they are very few agent or fiduciary considerations; volunteerism is not comparable to employment or management development. Even within non-profit services, women could increase the accountability of their non-profit entities in terms of finances, governance, and productivity measures to improve the odds that that experience could possibly prepare them for the demands of for-profit board roles -- not to mention the benefits of improved operational integrity and financial performance.

The argument is often made that "women are tired of being the only ones to change" or that "women should not need fixing." If women want to take on the positions of leadership at the corporate governance level, the search will not be for repaired women; it will be for whole women.

The Olympic Games have a very long history beginning in ancient Greece (776 BC). The modern Olympic events began in 1894. Today, in Vancouver, Canada, 40% of the participants are women.

The first women's Olympic Marathon was in Los Angeles in 1984. Today, there is less than an 11.5 minute difference between the marathon completion record times for men and women.

The ParaOlympics (founded in 1960) is another exemplary forum where challenged individuals excel rather than seek special favors. How did we achieve such astounding accomplishments without legislative dictates?

Training, preparation, a strong desire to succeed --- these are the factors that determine champions on the playing field of life, just as in any other comptetitive marketplace.

Proper conditioning means undertanding what is required for the individual to perform. Waiting for society or the world to change and make things easy for a select subgroup of participants has never given the world talented leaders or contenders.

Conclusion: The issue of women on boards of directors is a market phenomenon, not merely something to be addressed exclusively by legal means. Perhaps the greater attention paid to legislative alternatives to address the issue might be a reflection of the greater number of women attending and graduating from law school, at least as compared to women graduating from business schools, urding the past 30 years.

Women, educators and shareholder -- individually and collectively -- have many measures available to them to improve the preparedness of women today to serve on corporate boards of directors, both large and small. At a minimum, we could be looking harder at "the numbers" that describe the supply side of the marketplace: how many women are staying in the top corporate ranks, how many women own businesses earning $1 million/year in revenues AND with their own boards of directors, how many women are pursuing governance education and preparing themselves for the for-profit board role?

Do shareholders know about the diversity of the boards that hold their investments? Do they voice their concerns during annual meetings? Do investory proxy services even consider diversity as part of their assessment of governance quotients? Aren't women a significant percentage of that shareholder pool? If the shareholders don't care, why should the boards care?

In general, the more sources looking at "the numbers" that describe the problem and the progress, the more likely women will focus on the opportunities of board service. Then it is more likely that women will contribute their share in solving the problem -- from the supply side of the marketplace.