The Conference Board Governance Center Blog

Apr
06
2011

Is ‘Pale, Male and Stale’ Good for Corporate Boardrooms?

They’re “pale, male and stale.” That’s the phrase I have heard on more than one occasion to describe the majority of corporate boardrooms. Whether it spoken by a speaker at a Governance Center Crash Course or written in an article by Nell Minow of The Corporate Library (TCL), the words seem to ring true when you look at the recent statistics. The plain truth is most corporate boards in the U.S. and in most of the developed world are being run by older white men.

In these times of change in the marketplace and political upheaval, one has to wonder if it is such a good thing to keep the status quo in the composition of corporate boards. Consider the research unveiled last month by GovernanceMetrics International, the global corporate governance and environmental, social and governance (ESG) research firm that merged with TCL earlier this year:

  • Twenty-three global companies have no women on their boards.
  • Forty percent of the world’s largest 4,000 companies have not appointed one female member to their boards. (Of that, only one board has a board with a female majority.)
  • Women hold only 12 percent of board seats at major U.S. companies.
  • One-third of European companies do not have women on their boards.

Those are pretty sobering figures, especially when you consider that it has been 100 years since the first International Women’s Day (March 8). That is a celebration where women throughout the world celebrate the progress that has been made in gender equality. Somehow I don’t see that celebration taking place in corporate boardrooms.

Minow, a GovernanceMetrics International board member and former editor of The Corporate Library, wrote in her Bnet blog, Risky Business, March 8:

“While half of U.S. companies now have at least two women on the board according to the most recent census from Catalyst, a non-profit advocacy group for women in business, 10 percent are still all-male…

“Why can’t boards find women who know the difference between a 10-K and a 10b-5 to serve as directors?  I guess they don’t get out much.”

However, some progress may have been made yesterday when two of the world’s largest institutional investors announced a digital resource for “finding untapped diverse talent to serve on corporate boards.” For those of you not following, that’s code word for women and minority director candidates. Granted, it’s not the first effort to seek out competent female and minority candidates but this one might have some traction.

CalSTRS (California State Teachers’ Retirement System) and CalPERS (California Public Employees’ Retirement System) announced Tuesday that they have created an advisory panel whose charge it is to develop the Diverse Director DataSource (aka 3D).

“The Diverse Director DataSource is all about finding talented people with the knowledge and ability to invigorate a corporate board,” said Anne Simpson, senior portfolio manager, CalPERS head of corporate governance. “This is an important step toward challenging ‘group think’ in corporate boardrooms, which we have learned from the financial crisis can have a devastating impact on the ability to question assumptions.”

Anne Sheehan, CalSTRS director of corporate governance, resonated the importance of having a truly diverse board. “There is demonstrated economic value from having a board of directors that is diverse not only in gender but in age and experience, and we believe that makes it a shareowner value issue,” Sheehan said. “The candidate qualifications will still have to meet the company’s needs, but the final decision should be made by shareowners when they vote.”

Both organizations have hired The Corporate Library to develop the Diverse Director DataSource, hoping to tap that not-for-profit corporate governance research company’s database of more than 130,000 public company directors. The 16-member advisory panel includes people from all different facets of corporate governance, such as Ira Millstein, senior partner of Weil, Gotshal & Manges and corporate governance dean at Yale School of Management; Douglas Chia, assistant general counsel and corporate secretary for Johnson & Johnson; Julie Hembrock Daum, practice co-leader for the North American Board and CEO Succession Practice at Spencer Stuart; AnnYerger, executive director of the Council of Institutional Investors; and Richard Koppes, a fellow at Stanford Law School.

To access the 3D tool, you can visit the CalPERS corporate governance site or the CalSTRS corporate governance site.

As I mentioned, this isn’t the first attempt to create such a specific director database. In fact, it’s not even the first attempt this year to do so. In a Dec. 3, 2010 post, I mentioned the efforts of Agenda, a Financial Times electronic newsletter. That publication in September 2010 published its first Agenda Top 100 Diverse Board Candidates after seating a panel of 14 corporate governance experts to determine the standards for the prospective candidates. The timing of the publication was meant to coincide with the first year of the enhanced SEC disclosures and the section of the Dodd-Frank Act that requires regulators to create diversity watchdogs to monitor the regulators and with whom they do business.

The 2010 amendments to Item 407(c) of Regulation S-K, which went into effect in March 2010, require disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director. In addition, if the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, the company must disclose how the policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy.

In the introduction to the Agenda Diversity 100, Editor Tony Chapelle wrote:

“The topic of diversity is forcing its way onto boardroom agendas perhaps more so now than at any other time in the history of corporate America. The impetus is mainly coming from Washington.”

In the end, many corporations don’t want to be told by Washington or any other governmental body what to do to make their boards more diverse. Maybe the efforts of CalPERS and CalSTRS might finally make a difference in the quest for truly diverse boards in the United States and even the world.



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3 Responses to “Is ‘Pale, Male and Stale’ Good for Corporate Boardrooms?”

  1. [...] Le constat n’est pas nouveau: les conseils d’administration sont en très large majorité masculins. Ce qui est frappant, c’est que pour de nombreuses entreprises la question n’est même pas encore celle de la masse critique de femmes dans leurs conseils d’administration, mais celle de la présence de femmes tout court. Selon une étude récente: [...]

  2. [...] Le constat n’est pas nouveau: les conseils d’administration sont en très large majorité masculins. Ce qui est frappant, c’est que pour de nombreuses entreprises la question n’est même pas encore celle de la masse critique de femmes dans leurs conseils d’administration, mais celle de la présence de femmes tout court. Selon une étude récente: [...]

  3. Richard A. Smith says:

    Let’s first consider what is good for corporate board rooms and then make some determination about membership. Only if we are first very clear about what is good for them can we have a good discussion about who should be on them. First, I think there has to be some discussion of the culture of the board to handle differing points of view and tension it creates. If there is not a culture that can handle that sort of tension. Those with differing points of view may not be willing to voice strong objections. Next I would suggest that the board understand what areas they can make decisions and at what time of year. In some cases boards have established calendars for major topics the board must consider. December/January – company strategy; February – Business Planning; March – Budgets to support Strategy and Business plans all the way through executive compensation and succession planning later in the year. There should be a discussion of committee charters as well. One other area for consideration is that there should also be an examination of which decisions go to the board and which ones should not. This would give the organization and board a clear line of sight about who is making the call in certain situations. Often in the heat of battle it’s helpful to know ahead of time that the board or organization is making the call instead of deciding at that time when people can be swayed by the heat of the situation.

    I say all of this to say that if the board is very clear about what decisions are being made and by whom then if can employ a disciplined process to decide who to add to the board based on the skills needed for their areas of focus. The board can then plan the appropriate outreach to those who are demographically diverse and those with diverse skill set to fill board seats as they become open. This kind of disciplined approach would make it easier to “fish in other ponds” to bring in those that are demographically diverse and are qualified. In my view this could reduce the perception of tokenism and open the door for people the boards many not have otherwise have considered due to previous relationships with current board members (relationship decision making versus requirements based decision making).

    I don’t know if pale, male and stale is a good recipe for anything unless I am clear about what is to be accomplished by the group. It’s like the saying goes, “if you don’t know where you are going then any road will do.”

    In my view, making decisions based on requirements and the goal to be accomplished is always a good place to start. When we start there we can be reasonably sure those who are in the process are qualified and competent to make decisions that have great large organizational impact.

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