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December 30, 2010
Women Directors Improve Corporate Performance, but Remain Underrepresented
    by Robert Kropp

A report by Corporate Women Directors International on the status of women directors in 51 countries finds persistent lack of access to board appointments.

The business case for representation of women on corporate boards of directors is simple enough, according to a recently published report by Corporate Women Directors International (CWDI). "Very simply," the report states, "Studies all echo the same principle: the greater the percentage of women on boards and in senior management, the better the company's financial performance."

CWDI seeks to promote the increased participation of women in corporate boards globally, develop national and international networks to link women directors, and improve directors' skills in corporate governance.

The report, entitled
Accelerating Board Diversity Globally, cites a number of studies published throughout the past decade, all of which discern a marked correlation between female directors and improved corporate profitability. Most recently among those cited, a 2008 report entitled Girl Power: Female Participation in Top Management and Firm Performance stated, "Having just one woman manager on an executive team is associated with a three percent increase in a firm's market-to-book ratio, a measure of the current value of a company."

More recently, a
McK insey and Co. report found "a correlation between the proportion of women serving on a firm's executive board and how well that firm performed both organizationally and financially." And a repo rt by Goldman Sachs concluded that "female education is associated with higher productivity, higher returns to investment, better agricultural yields and a more favorable demographic structure."

As the report by CWDI cautions, "At best, these reports show a correlation as opposed to causality."

"Nonetheless," the report continues, "The fact that the same pattern emerges each time…validates an emerging equation—diverse boards lead to a better bottom line."

However, as a recently published
study by Calvert of the diversity practices of the S&P 100 in the US found, more than half of S&P 100 companies have no female and/or minority representation in the highest paid executive positions. The report by CWDI, which covers the status of women directors in 51 countries, corroborates Calvert's findings, stating, "Not many women have attained board appointments in the countries covered in this report."

"In the wake of the past economic crisis, however," the report continues, "New ways of doing business to avert future global market recessions has spilled over to interest in new economic players."

At present, unfortunately, "What the data reveals is the dismal reality of women's lack of access to board appointments," according to CWDI. Only one-third of the countries included in the report "have at least 10% of board seats held by women in their top companies," primarily in Europe, where 11.9% of directors are women. In the Americas, 9.9% of directors are women. In the Asia-Pacific and Middle East/North Africa regions, the percentages are substantially lower.

The report analyzes a number of strategies to increase the representation of women on boards and in senior management, and finds quota legislation to be the most effective. A number of European countries, as well as South Africa and Israel, have passed legislation "which stipulates that a certain percentage of director positions be allocated for women;" most recently, Italy did so earlier this month, mandating that all public limited companies have at least one-third of board seats allocated for women.

Citing the "exceedingly slow progress in women's access to boardrooms," the report states, "However one feels about quotas as a whole, there is no denying its effectiveness in increasing women's presence on corporate boards."

Other initiatives addressed by the report include corporate governance codes, including stock exchange requirements, which, according to the aforementioned McKinsey report, "are most effective when combined with mandatory disclosure." In the US, the Securities and Exchange Commission (SEC) approved
Proxy Disclosure Enhancements in February, which among other directives, requires companies to disclose diversity in selection of directors in their proxy statements.

Because enacting quota legislation in the US is highly improbable, sustainable investors and other shareowner activists looking to enhance the long-term value of their holdings have resorted to shareowner resolutions to pressure companies to improve board diversity, and CWDI refers to several such initiatives in its report. As far back as 2003, for instance, Calvert submitted resolutions on the issue that won 38.8% of shareowner votes at Gentex, and 28.6% at Danaher. In the same year, a resolution filed with Molex was withdrawn after the company appointed the first woman to its board.

"In 2009," CWDI reported, "Calvert filed their 50th shareholder resolution on board diversity." Forty-one of the 50 resolutions were successfully withdrawn, and according to Barbara Krumsiek, President of Calvert, 27 female and/or minority candidates have been added to boards.

In 2010,
Pax World withheld votes from 74 board slates because those companies did not nominate any women directors. One of Pax World's investment products is the Pax World Global Women's Equality Fund, which, according to the firm, is "the only mutual fund in America that focuses on investing in companies that are global leaders in promoting gender equality and women’s empowerment."

In October, a coalition of investors led by Calvert, Pax World, and
Walden Asset Management asked 54 companies for greater clarity about gender balance, and called for increased representation of women on boards and in senior management.


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