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Guest Contributor: Contraction of U.S. Companies Blurs Women Director ‘Magic Number’

GUEST CONTRIBUTOR POST: Elizabeth Ghaffari is the founder, president and CEO of California-based Technology Place Inc., parent company of Champion Boards – a service that fosters the design of boards with an emphasis on the advancement of top level women at major corporations and organizations. This post is exclusive to The Conference Board.

By Elizabeth Ghaffari

The historic focus on the “magic number” – the percentage share of women directors on the top company lists from Fortune , Forbes or S&P  – tends to miss the bigger picture of what’s happening to boards and corporations in general.  Women have been added to boards when firms have been able to increase the size of their boards.  Recently, companies have disappeared through mergers, acquisitions and closure; and boards have shrunk. A steady trend in the addition of new women directors “appears” to be a slight increase in that magic number.

We have failed to mention or analyze these trends, suggesting a short-sightedness and lack of strategic perspective in talking about adding diversity candidates to corporate boards.  If we don’t understand what is causing this sea change in the American economy, we are failing to address the substantive and fundamental issues at play in the marketplace. We’re just shuffling the deck chairs on the Titanic.

Take a look at snapshots of current research on the topic of women added to boards in order to step back, see and understand “the big picture.”

Audit Analytics, which studied director departures from 2005-2010, found that the total number of SEC registrants has declined, including the number of accelerated, or larger, companies.

Audit Analytics’ data on SEC filings by banking entities demonstrated the same trend more clearly. Mergers and acquisitions and closures began well before the start of the current Great Recession (2007).

A similar pattern is apparent from banking data from the FDIC and the NCUA (covering national and state credit unions).

ghaffari chart1The FDIC has reported a massive decline in the number of U.S. commercial banks since 1984 (the Resolution Trust era, when the savings and loan crisis essentially decimated the ranks of U.S. banking institutions).

There has been a steady and consistent decline in U.S. commercial banking entities since 1984 when about 14,500 banks existed vs. today when 6,700 exist.  That’s a total loss of 7,800 major financial entities.  At an average of 10 directors each, that decline would mean 78,000 director seats lost over 26 years or 3,000 fewer board seat opportunities every year.

The FDIC closed 140 banks in 2009 and another 157 in 2010.

The same pattern has occurred at the federal and state credit unions, although not at as
dramatic a pace as for commercial banks.

Banks and credit unions represent a rich source of director learning experiences for individuals active in the community.  Loss of these entities means a loss of lending power and of director opportunities, especially for diversity candidates.

There also has been a loss of executive positions at major corporations (Fortune 500 firms).  Downsizing began at the turn of the century, affecting executive opportunities for both men and women.  When executive opportunities are constrained, quality director prospects end up in lower positions, working for smaller firms, or unemployed.ghaffari chart2

The “clout positions” (the most senior corporate decision-making positions) flat-lined at the turn of the century.  The total and the number of male “clout positions” remained relatively constant since 2006, while women made a small jump in 2010, according to data collected by Catalyst. However, “clout positions” for women did not decline as much as all executive positions for women.

The number of women directors at Fortune 500 firms has shown consistent increases since Catalyst began tracking the data in the mid-1990s.  However, the total number of board seats and male-occupied seats have declined.  For almost every year (except 2009), the number of women directors increased. (FYI, the reason there are gaps in the Fortune 500 Executive Ranks chart is that Catalyst did not perform surveys in those years – 2001, 2003 and 2004.)

We see the same pattern elsewhere, a few examples of which follow.

ghaffari chart4The Financial Times Stock Exchange (FTSE) 100 director surveys, conducted by the Cranfield School since 1999, (chart left) show the same pattern of an overall decline in the total and male-occupied director seats, yet an increase in women directors (right axis). International data provided by GovernanceMetrics International (snapshots for March and November 2009, and March 2010) also showed total directors were down; women directors up slightly.

The most dramatic perspective is provided by data assembled for Directors & Boards magazine by James Kristie, editor and associate publisher, with Kelly McCarthy.ghaffari chart5

Annual data from 1994 to 2010 (right) shows the number of new director announcements in green, the number of companies announcing new directors in magenta, both consistently declining. The number of new women directors is represented by the bright aqua line toward the bottom: showing a consistent upward trend, especially recently.  The quarterly information (below) indicates a greater volatility in all three measures, with the same patterns.

That extreme volatility is apparent  in new women director announcements tracked by Directors & Boards (below).  The green line (measured on the right axis) is women’s share (the “magic number”) – showing a recently upward trend. The magenta line (left axis) is the actual number of new women director announcements — relatively steady trend but volatile (ranging between 10 and 45 women a quarter).

ghaffari chart6

The volatility of new women director announcements is seen in data tracked  by, tabulated and reported on the website from 2005 to 2010.  The same slightly upward trend has occurred over the past six years, but a strong positive pattern is not obvious.

Collectively, these charts reaffirm today’s more challenging board roles, especially post-Sarbanes-Oxley.  Duties are more significant, hours are longer, and expectations of committee performance are greater than ever before.  The presence of risk and the demands to manage risk are unparalleled.  The chances of derivative lawsuits by disgruntled shareholders are great.  Regulatory scrutiny is tougher and comes from all directions, including global authorities.  In this setting, it is not surprising to see some directors leave.  The comfortable “old friends” network of directors can no longer be sustained in the boardroom.  Women directors have not been part of that exodus, but consistently stayed the course and appear to be making real progress in the post-recessionary period.

These statistics suggest we should take a closer look at the structure of the boardroom as whole, rather than simply focus on the percentage share. The increase in women’s share (the percentage) can primarily be attributed to the decline in total number of available board seats. The percentage share has been extremely volatile and does not give us the perspective we require by looking closely at the dynamics going on in the boardroom.

More importantly, it is the downward patterns in the numbers of companies, banks and executives that are the crucial factors to be examined.  Partial explanations may be the dramatic rise in mergers and acquisitions: U.S. companies are growing by agglomeration, rather than by creating net new business ventures. Existing firms (especially banks) are becoming behemoths. The regulatory pressures are pushing more companies to privatize and to relocate. Another possible explanation might relate to excessive executive compensation practices rewarding top tiers of US companies, especially if they aggressively cut the labor and related expenses at the lower tiers.

If U.S. companies are not growing, then other economic opportunities will not follow.  Without widespread opportunities, a whole host of challenges will hit us in the face: taxation, investment, savings and other discretionary options. If companies and boards continue to contract, opportunities for new women directors and women corporate leaders will be constrained.  If these patterns are the inevitable price of “globalization,” then we need to be confident that we are getting what we bargained for in the negotiations.  That is The Big Picture we need to examine in greater detail.

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2 Responses to “Guest Contributor: Contraction of U.S. Companies Blurs Women Director ‘Magic Number’”

  1. The May 26, 2011 WSJ article, “U.S. Falls Behind in Stock Listings” by Aaron Luchetti provides another graphical demonstration of declining trends for US corporate formation. Read it at:

  2. […] This post was mentioned on Twitter by Amy Resnick and BPW Australia, 2020 Women on Boards. 2020 Women on Boards said: Contraction of U.S. Companies Blurs Women Director ‘Magic Number,’ The Conference Board blog post. […]

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