Should gender diversity be mandated for women on boards?

September 20th, 2012 at 3:12 pm by David Farrar

I just took part in a panel and debate/discussion on gender diversity on listed boards. This was at the ’s Miro Summit. Was a very interesting discussion with contributions from some very experienced board directors – both male and female.

It is Chatham House rules, so can’t quote people directly but I can quote my own remarks, which are below:

New Zealand has a reasonably good track record of achievement for .

Yesterday was the 119th anniversary of the day women in NZ got the vote, after Governor Lord Glasgow signed the new Electoral Act into law – making NZ the first independent country to do so.

 Some of the arguments against suffrage included “Would the home-loving New Zealand wife be ‘unsexed’ by participation in politics, her grace and softness lost? Would her husband be less than a man to allow her to participate? Would the reform lead to unthinkable role reversals where wives made the speeches and husbands fried the chops?”

Personally I quite like frying chops, and thinks we can agree we have come a long way in 119 years.

 As many of us know we recently had a female Prime Minister (as was her predecessor) a female Governor-General, Speaker, Chief Justice, and CEO of the then largest private sector company.

However that does not mean all is rosy for women of course. We have research showing women get paid less than men on average. I won’t fall into the trap of Alasdair Thompson and repeat his suggestion as to the cause. There are in fact a number of factors behind the average pay difference. One of the most interesting is that there is a pay differential even very early on in a professional career – long before factors should as time off for children comes into play. It seems the reason might be that young men are more aggressive pay negotiators – they will push for more pay, while young women tend to accept whatever the employer offers.

 But to put things in context, the gender pay gap in NZ is the 2nd lowest in the OECD.

 NZX has just 9% of directors who are women on their top 100 board. The ASX is up to 13% or their top 200. The NZX numbers may improve with their new disclosure rule, but frankly both 9% and 13% are embarrassingly low numbers. To be fair to Australia I understand 25% of new appointments are women following a voluntary gender disclosure rule. NZX of course is implementing a mandatory one. In the US the Fortune 500 companies have 16% female directors.

Now one can take a view, so what. Does it matter if boards are all men, as 57% of NZX100 boards are? Should we be gender-blind when it comes to board members? Personally I think diversity is important on boards – not just gender diversity, but skills diversity and personality diversity also. A board of seven insurance actuaries would be as unbalanced as a board comprised of seven entrepreneurs such as Rod Drury.

But does gender matter? Well there is an old book called men are from Mars and women are from Venus and while that is about relationships, I think it reflects that men and women do often think differently. There are some advertisements that men love and women loathe, and vice-versa.

There is also some empirical research. A study of Fortune 500 companies in the US from the 25% of companies that had the most female board members had 53% higher return on equity than those companies in the bottom 25% in terms of female board members. This is a correlation, not necessarily causative, but still powerful research. It would be very interesting to see someone apply the same research methodology to NZ, and see if the results are the same. Maybe Oliver can add it to his work list!

Some say there are not enough women who have the commercial experience to be directors of NZX companies. Putting aside the fact this can be a self-fulfilling prophecy, I don’t accept this.

For many years now more women than men graduate from university. In 2010 55% of commerce and business graduates were women. 59% of law graduates are women. And overall 64% of all graduates are women. On a separate issue, we need to do something about male education in this country.

I’ve been on a couple of company boards as a non-executive director. All four of my boards chairs have been women, and while these were small organisations, I certainly rate their ability to serve on boards of larger companies if they had the opportunity. One of them in fact has served on almost a dozen central and local government owned company boards with distinction, including major SOEs. She’s a fellow of the Institute of Directors yet until last year I believe she had never been on the board of a NZX listed company. 

 23% of IOD members are women, which means there are roughly 1,300 female directors in New Zealand of whom only 45 are on an NZX100 board. In the state sector 41% of directors are women. So again I don’t accept that the 9% figure is simply because there are not enough suitable women. I note two of our largest law firms are now chaired by women – Russel McVeagh and Minters.

But despite the fact we do have a clear problem, I do not favour mandated quotas for board members, for six reasons. 

  1. Philosophical – not the role of the state to tell shareholders who to put on their boards. Companies are entitled to make bad decisions. We already see too much effort from the Government in trying to tell both people and businesses what to do.
  2. Slippery Slope – why stop at mandated gender diversity. Race and age could well have arguments made for them as we have few Maori and few young directors. I think age is arguably just as important in terms of having diversity of thought around the board table.
  3. If we single out gender as a proxy for diversity, then we may give a false confidence and weaken efforts to improve diversity in other areas.
  4. One size doesn’t fit all. While it is unwise for most companies to have all male boards, companies which specialise in, for example, men’s clothing might be fine. Mind you, in my experience most men have women choose their clothes for them, so maybe not the best example.
  5. A quota may not lead to more women on boards – just lead to Roseanne Meo being on 20 boards instead of 10!
  6. With a quota system, there will be a suspicion that some appointments will be tokenistic, and some female directors will be judged as having succeeded in getting board appointments only because of their gender. That’s unfair to them.

So having identified the problem, and also rejected quotas as a solution, what would I do.

Well I think the problem is the method of recruitment for Directors amongst large NZX100 companies. Most recruitment seems to be done informally amongst those who are known to current Directors, which makes it hard for new Directors to break through.

NGOs and smaller companies often formally advertise for directors, as does the Crown and Local bodies. It is rare you see an NZX company advertise.

Why on earth do large companies still hand pick directors? Imagine if your CEO told you that they are not going to advertise for a COO, but instead appoint someone he or she knows to be well qualified. You’d tell the CEO to pull their head in, and advertise the role. What is good for the goose is good for the gander.

I think the solution, or a partial solution, is not quotas, but instead just persuading NZX companies to operate open recruitment processes for directors. The new disclosure policy should identify the companies that have all male boards, and it will be very interesting to compare how many of them do open recruitment of directors, compared to those who use the shoulder tapping method.

So in summary I do believe that companies should be allowed to make mistakes, and they should be allowed to have all male boards, but believe the combination of the initiatives by NZX, the IOD, the Govt and more generally the business community will see NZX boards become move diverse over the next five to ten years. But even if they do not, then the Government has no more of a role mandating gender quotas on private company boards, than they do regulating the maximum pressure of shower nozzles.

I should point out that one Director pointed out most NZX companies do do searches for new Directors, rather than just approach someone they know – however they tend not to advertise – rather use specialist recruitment agencies.

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17 Responses to “Should gender diversity be mandated for women on boards?”

  1. kowtow (8,725 comments) says:

    Most stupid idea this year.

    It is just a matter of time though. This is pushed hard in Europe on equality grounds.Madness.

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  2. Manolo (14,026 comments) says:

    Not at all. People should get there on merit, and merit, alone.
    A supremely stupid idea raised by academics, femi-nazis, do-gooders and crook politicians, of which never there is a shortage of.

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  3. peterwn (3,298 comments) says:

    If women want more of their own on boards, why do their leaders not set up feminine investment funds to get the voting clout.

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  4. backster (2,184 comments) says:

    Politically correct rubbish, next there won’t be enough Queers, or Maoris, or Union Reps. Less laws, less interference please.

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  5. Redbaiter (9,492 comments) says:

    “A supremely stupid idea raised by academics, femi-nazis, do-gooders and crook politicians, of which never there is a shortage of.’

    Marxists actually, and private companies need their arses kicked for going along with such divisive rubbish.

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  6. East Wellington Superhero (1,151 comments) says:

    I haven’t read the Fortune 500 study but a recent Micksey & Co study said there was a correlation between performance and higher rates of women on the boards of big companies. However, it conceded that there was no causal evidence in their study. And they noted that larger companies and more successful companies had the luxury of adopting these types of policies. As DPF has said in the past, it should be on merit. Women on average spend less time in the work force because they have children. This is not a bad thing, it’s just reality. They therefore, on average, gain the experience and development that on-average that men get. It’s just statistics. Also, I suspect that people who are sexist are probably bad team-players and would naturally remove themselves from the pool of desirable directors, so I doubt there is a legitimate sexist force at play here. That said, I’m not a director so perhaps I’m wrong. What I do know is that people like Dame Jenny Shipley want to make a name for themselves and push this issue but I’m unsure of the neferious aspects of the culture in NZ.

    My concern is that less-serious women’s issues take-away from more serious ones – like fatherlessness, being trapped into prostitution & drugs, and very high rates of abortion in Maori and PI women.

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  7. MT_Tinman (3,249 comments) says:

    Should gender diversity be mandated for women on boards?

    No!

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  8. East Wellington Superhero (1,151 comments) says:

    Also, the ASX has just finished a good review of their new rules (KPMG endorsed ASX Corporate Governance Council). They basically have a rule that says “it would be good to have a policy (but it’s not prescribed), and it’d be good to show us your statistics, but you do not have to. But, if you choose not to, please explain why you haven’t disclosed you policies”.

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  9. my 2 cents (1,091 comments) says:

    Does gender matter?
    Yes.

    Women are different from men and yes a board can benefit from their style and modus operandi.

    Should that be forced on companies and investors?
    No.

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  10. CJPhoto (227 comments) says:

    Shouldn’t the shareholder decide, not the regulator.

    The problem is shareholders don’t get the choice as the boys club just pick their own friends/members.

    Wouldn’t it be great if two candidate were put up from each spot and the shareholders choose. They would then choose in their own best interest.

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  11. KiwiGreg (3,259 comments) says:

    All you end up dooing is providing an income to a small number of woman who get on all the boards who need to make up numbers. Typically they make themselves acceptable by not being any trouble.

    Like all government-mandated discrimination it wont do good and the law of unintended consequences cant be beaten.

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  12. Barnsley Bill (983 comments) says:

    Yes, but only if they bring scones.

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  13. lastmanstanding (1,300 comments) says:

    Sigh as a long time shareholder in a number of NZX companies I want to see the BEST people on the Board whoever they may be. Forget quotas. Forget excuses.
    Remember when Geronimo and the other Indian chiefs sat down to pow wow round the fire the first thing they all said was’you cant get enough good injuns these days”
    As DPF says Board positions should be openly advertised and there should be a transperant process for selecting Directors to be put to the shareholders for voting in or not voting in.
    Alas they aint the case in NZX companies. The shareholders are presented with a fait acompli with the large insto shareholders deciding and the small shareholders getting shafted.
    I often wonder why I continue to bother investing in NZX companies but hope springs eternal that one day things will change for the better.
    There are a small number of rapidly aging Directors of NZX companies. With the baby boomer gen moving into retirement there is and should be a change to Gen X and then Gen Y Directors but its going to take a fair bit to prise the encumbents from around their Board tables.

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  14. BigFish (132 comments) says:

    We do see the same people popping up on the boards of public companies here. Some of them seem to be the death knell of profitability and share price.
    Could definitely do with expanding the pool of talent beyond the same old boys.

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  15. barry (1,317 comments) says:

    Only if the rules included gays and lesbians as well – otherwise theyll claim discrimination also…….

    Directors of NZX companies should:
    1. have completed AND PASSED AN exam all about directorship.
    2. Be far more liable than they are at present for errors and omissions.
    3. Be nomination only from the floor of a shareholders meeting.
    4. Their pay is as passed at shareholders meetings.
    5. Directors can only be on a limited number of boards – say 2 or 3 max.
    6. half the boards directors must be employees.

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  16. MH (810 comments) says:

    why not the same criteria for getting men into the education profession?

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  17. Huevon (223 comments) says:

    I can speak with some personal experience – I’m a bloke and I’ve been involved with NZX and public company boards in a professional capacity. Firstly, there are plenty of examples of very competent women in business. These people are already there because of their competence and don’t strike me as the kind of women who would like to be appointed under a quota. The problem with a quota is that it will attract women who don’t mind being token appointments and can turn up for the nice boardroom lunch once a month and nod their heads while occasionally spouting some drivel about “diversity”. Sadly, these people abound in the corporate world almost as much as in government bureaucracy. Due to the fractious nature of identity politics (just ask Alistair Thompson), the token women are virtually immune from criticism. Instead of platitudinous requirements for gender reports, how about the NZX makes companies disclose who much shareholder wealth they make or destroy each year. Real people actually care about that.

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