Women On Board
In the land of Google and Facebook, diversity is worshipped everywhere but the boardroom
“Insanity is doing the same thing over and over again and expecting different results.” — Albert Einstein
Part I: Silicon Hypocrisy — Innovation Everywhere But The Boardroom
When a company is added to the S&P 500, it is like being drafted by the major leagues. Warren Buffett, for one, invests in the S&P 500 because he sees it as a perfect microcosm of the entire economy.
If you discover, then, women represent only 21% of boards of directors on the list, that sounds more like a microcosm of the local sports tavern. And when you examine the companies more closely, you may be surprised by some of the biggest gender offenders.
The search engine giant isn’t reticent about advocating diversity, especially among its vaunted engineers. That’s for ‘the little people.’ Higher up, on billionaires row, the male status quo is in safe hands. That is why, 19 years after the company was founded, Google’s board is 77% male, the executive committee is a male trio, and the four senior officers are a male quartet. In the Google orchestra, women play second fiddle.
Facebook is not much better
When the company went public in 2012, angry protesters decried the company’s lack of women on the board. Mark Zuckerberg soon announced Sheryl Sandberg, a stunningly qualified woman, would be its first female. But why did it take four years and why did he choose a subordinate whose salary he pays, over an independent female candidate?
When the gender rules are for ‘them not us’, it leads to dissent or in some cases, radicalization. Is it any wonder James Damore’s diversity memo sent Google into a social media meltdown? The facts of the memo have been hotly debated, but the ruckus was caused by Google’s clumsy response — firing the engineer out of fear of a gender backlash.
Same song, same dance
Since 1972, when Katherine Graham was named the first female CEO and director of a Fortune 500 company, boards say they want to vastly increase the number of women. Yes, really.
Based on the GAO’s or Government Accounting Office findings, it’s not going to happen anytime soon. At our current rate, it will take four decades to achieve gender parity. By 2057, Elon Musk will convene a board meeting on Mars and we will still be asking why aren’t there more women on Earth’s boards.
This isn’t a ‘go girl’ program, it is a life changer.
Let’s call it the Board Corps, modeled after the Peace Corps. The purpose is to train aspiring and dedicated people to learn how to conduct business in a multi gender and ethnic society, and who can be the global eyes and ears of the boardroom. It is also a solution to the gender imbalance, as you will see.
If we really want to eliminate the bottleneck, we need to broaden the ‘spec’ that keeps many qualified people out of the boardroom by starting with women from diverse global backgrounds. Look beyond the Ivy League elite, where women have careers identical to the men, and the result is sameness in a different outfit.
A better future board director might be a woman from the Congo who ran a shelter for abandoned children. She might be able to teach the board how to deal with adversity.
Then, make sure to ask Congress and the State attorneys general to tamp down on a plaintiff bar disagreeably attached to litigation against boards. Rather than fighting for shareholders, they turn board directors into change fearing automatons.
Finally, we need boards of directors to address the challenge with a bias towards action, because our problem isn’t lack of will, it is lack of urgency.
Part II: The Media Problem
The media loves to write about the boardroom. It would be useful if they understood what goes on there.
“The capacity of the mind to solve complex problems is very small compared with the size of the problems.”
— Herbert Simon
The media is clueless
To a business journalist, writing about corporate governance is like a muscle car nut writing about the Prius.
There are four reasons everything you read about the boardroom can be taken with a heaping spoonful of salt. Every year around proxy season, a male senior editor assigns a governance article to a female junior reporter, chosen specifically to highlight bias in the boardroom before the article is even written. Secondly, the reporter never ventures near the boardroom or speaks to directors. Thirdly, confirmatory comments by consultants, in return for good ink, lead the reader into believing this is science not opinion. That is like saying a Miami real estate broker is telling the truth when he says land always goes up in value. Fourth, the published story concludes with a wagging finger pointed at the men on the board, who dutifully say they will try harder next time.
Rinse and repeat.
Diversity is the hallmark of a high functioning board of directors and the vast majority of boards know it and why they have women on the board. The real problem is due to a variety of customary, reinforced, incentivized practices that make it very difficult to recruit large numbers of women at one time.
The challenge for women in the boardroom isn’t storming the gates, it is just getting the gates to open wider and stay open.
Here are the top 11 challenges believed to prevent women from better representation inside the boardroom — some quite true, others not so much.
Bias: False. The boardroom as it is currently comprised has placed some women on nearly 100% of big company boards. The challenge is how can they go from one to many — and fast. To do that, we will need to deal with some of the intrinsic problems below.
Vetting: True. Bringing on a new director can take a year or more while the candidate meets every director in person, and in some cases the C suite. The candidate may be a current CEO or a very busy entrepreneur. Directors are just as busy and have to travel great distances to interview. The turnstile moves slowly if your goal is to increase the flow of women.
Qualifications: True and False. You don’t need to be an accountant or an MBA, which in theory opens the boardroom doors a bit wider to people of different backgrounds, especially women. Ironically, it also can cut the other way. Lacking objective criteria, the board becomes tentative and will often go with people it knows. Men know men.
Hierarchy: True. If a CEO is rated superior to a CFO or a computer expert is rated higher than a marketer, more men will serve on boards.
Litigation: True. With unlimited liability for directors, any sudden change in the way a board is comprised catches the watchful eye of the plaintiff bar.
Turnover: True. The average director serves for 10–20 years, so turnover is slow.
Minority: False. (As in a voting minority). While it’s true that women can be outvoted, boards operate on unanimity. Even as a minority, women have a strong say.
Seasonality: True. Directors are appointed once a year, only so many can be added on that occasion.
Cost: True. The cost of a single board recruitment can run high as $250,000. Spending a million dollars to recruit 4–5 directors is a nonstarter.
Experience: False. Succession plans and compensation are pre-packaged by consultants. This lessens the need for specific experience requirements.
Regulation. True. After Sarbanes- Oxley, boards no longer allow lawyers and bankers associated with the company to serve as independent directors. Women make up half the lawyers today and many investment bankers. If they are building their networks as they should, that could eliminate them due to their work for the company.
Part III: The Global Mindset
Change the way a board thinks by starting with how it looks.
“Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.”
— Sherlock Holmes
Start with a large database called the world
Diversity makes a significant difference in board competence. Directors who think differently react differently and can be the dividing line between success and failure. Alfred Sloane, the founder of General Motors, once dismissed his board because everyone was in agreement. He asked them to return once they were able to debate. Now the imperial CEO is a relic of the past, groupthink is behind every disaster that plagues the modern business world.
Yet, as we hang our hats on race and gender diversity alone, it ignores another kind just as important, diversity of thought. The substance of this argument is if you draw directors from similar backgrounds and education, you end up with diversity in appearance and similarity in thinking. It means we have the same problems, with a new class of directors to blame.
That leads to an inescapable conclusion — we need global diversity. Expertise in Asia, Latin America, and Middle East/Africa will also bring racial and ethnic diversity as part of the package.
The challenge is how to operationalize given the logistics of travel from these parts of the world and frequency of board meetings. There is an answer, and it means thinking outside the boardroom box.
Grow your own.
How can you increase the number of women, minorities, and other missing ingredients from the board, find them on a global scale, train them as directors, and have a ready pool of qualified candidates?
Here is how the math works: there are roughly 5,000 public companies and they convene an average of 10 board directors. It amounts to 50,000 directors in America, and it means we need to recruit 25,000 to achieve parity inside the boardroom.
I propose the following.
- Convene a diverse group of men and women, with attention to diversity across all spheres and sectors. Importantly, be sure they are from around the world so they can act as the eyes and ears for the board of directors across multiple areas of expertise.
- Canvass all the key operating regions where the company does business for the brightest up and comers across gender, ethnic, and geographic groups. The list will probably come to a ratio of 100:1 to choose from.
- The goal is to convene no fewer than 10 people. Drawing from four cohorts 1) experts from business at a senior level; 2) globally connected advisors from key regions; 3) social and community leaders; 4) professionals from the arts, academia, medicine, legal, and finance.
- The cohorts should think of themselves as boardroom consultants who meet annually, once at a board meeting and once in the home region or market, telephonically during the quarters without meetings.
- Identify disruptive trends and technologies in their markets.
- Each cohort and individual has a pulse on key issues affecting the company. The cost of the Board Corps pays for itself in a year’s time if my hunch about insights into the emerging regions and technologies is correct.
- After several years, it will be clear which individuals have board potential, and preparations can be made to recruit them on an as needed basis.
- Serve for periods of 2–3 years with nonconsecutive terms (so that termination from the board is not seen as signaling).
- Those who do not become board directors will be more like lawyers or auditors who do not make partner, but leave with goodwill and long lasting relationships with the company.
- It will have the added benefit of making thousands of global women and minorities better versed in business. Good for the planet, too.
“I believe in the notion that great companies will stand among humankind’s noblest inventions.” — Peter Drucker
Directors have a fiduciary duty but collectively they have a duty to society. Gender fairness in the boardroom is on both of those ‘to do’ lists.
Note: After Per Sarbanes- Oxley, compensating people for advising the company makes them ineligible to serve as independent directors (for a period of three3 years). Once the cohorts are ready to become directors, companies can create a second tier of non-voting board members or appoint them as non-independent directors. (Note: Google’s Eric Schmidt is a non-independent director).