Board Diversity Issues and Corporate Governance - Essay Example

? BOARD DIVERSITY ISSUES AND CORPORATE GOVERNANCE The issue of corporate boards not being fairly represented in terms of female executives is not only common in the America or Europe; it is an issue that affects organizations internationally. The seriousness of the issue is critical such that governments like United Kingdom have come up with measures to promote inclusion of women in boards. The UK government suggests that boardrooms for organizations should have a quarter of the seats occupied by women. The move was prompted by the fact that although organizations sought to include women in non-executive appointments, there were little or no improvements in having women in executive posts (Treanor 2013). According to Neville and Treanor (2012), although the number of women in non-executive positions is on the rise, there is a stubbornly low number in senior management. Although some organizations have heeded to the call to have about 40% of the boardroom seats held by women, Norway which is ranked first has achieved about 35% non-executive directors after the government ordered firms to include women through quotas. In the United States, there are only 20 of the 500 S&P leading companies being led by women chief executives. Despite leading in the high number of women executives, the United States is not governed by quotas unlike European countries where board quotas have seen few female senior leaders and few chief executives. Joecks, Pull & Vetter (2012) highlight that despite the increase in the percentage of women in the workforce over years; there is a lag in the presentation of women in boardrooms as female directors. In addition, Joecks, Pull & Vetter (2012) note that the presentation of women in boardrooms fall behind in Europe owing to imposition of women quotas for countries like Norway, Netherlands, and France among others. The issue of inconsiderate female presentation in boardrooms is not just an issue without a cause. Joecks, Pull & Vetter (2012) reveal that fostering high female presentation in boardrooms is associated with either negative firm performance or positive performance. According to Treanor (2013), most companies have either a male-dominated boards or are all-male boards. The move to seclude women has long been attributed to the fact that males have had the right skills and attributes which could not be found in their female counterparts (Howard, 2013). However, time has changed this rule owing to the fact that more women have taken up education and have the potential to take up executive roles in organizations and promote high performance. Howard argues that organizational management should not be treated as one-size-fits –all and hence the need to consider diversity in the boardroom and more so gender diversity (2013). In addition, companies are needed to do away with governance regimes that do not meet the needs of the market, and changing times (Treanor 2013). Owing the seriousness of the issue, Treanor (2013), reveals that organizations are required to follow Lord Davies proposal in 2011 February which required that all companies to allocate 25% or a quarter of the boardroom seats to women. According to Joecks, Pull & Vetter (2012), the issues of women being underrepresented in boards is not only an issue in Germany but also internationally. According to Adams, Gray and Nowland (2013), the attainment of gender diversity in boardrooms has been a hard task especially where organizations have been left to voluntarily handle executive appointments. This is because, most organizations have always considered appointing male executives at the expense of women. In this regard, women have faced unfairness and inequality in such appointments thereby remaining disadvantaged. This meant that, female directors have had discrimination and no efforts had changed such culture in organizations. Recently, the issue of boardroom gender diversity is of great focus and has seen countries impose gender quotas with the aim of improving firm performance and promoting women representation. Els (2013) highlights that strong gender balance in the boardroom is essential in achieving 42% higher sales returns and about 66% higher return on devoted capital and about 53% better return on parity. Buchanan (2012) also conquers with evidence that strong female representation results to high performance compared to those without diversity in boards and top management. While Buchanan (2012) demonstrates positive link between organization performance and strong female presentation, others provide negative link and others find no link at all. However, Joecks, Pull & Vetter (2013) reveal that the differences in the impact of strong women presentation in boards by different studies are due to numerous factors. Some of the key factors are differences in women presentation in different countries; conducting the study in different timespans; and the use of different performance measures and methods of estimation. In addition, Joecks, Pull & Vetter (2013) appreciate that the differences in linking organizational performance to women representation in boards could be attributed to varying ratios of women on boards. The implication is that while some studies may have relatively low women representation in the participating boards, others may have high number of female representation in the boards. With the introduction of gender quotas on company boards, the implication is that quotas may restrict the appointment of the best available candidate and this would result to a cost that would be borne by the shareholders (Adams, Gray and Nowland 2013). Despite the event of foregoing the best candidate to appoint a female director, strong female representation in boardrooms is associated with the enhancement of the board’s effectiveness. This is because women introduce a different point of view onboard. For instance, Adams, Gray and Nowland (2013) highlight that with women directors onboard, organizations are bound to experience higher consideration of human values and aversion of risks. In addition, women directors are associated with high attendance behavior in board meetings and this contributes to high male attendance owing to influence from fellow women. Apart from being considerate on human values, women directors are associated with stronger orientation to stakeholders compared to their male counterparts (Joecks, Pull & Vetter 2012). The evidence that female directors are more stakeholders oriented was derived by Joecks, Pull & Vetter (2012) whose investigation on the effects of Norwegian boardroom gender quota laws revealed that there was an increase in relative labor costs and employment. For the organization, such orientation to the stakeholder would mean that additional value to the organization with time. A good example is in the presentation of women in boardrooms and top management results to better workplace conditions for women and hence better organizational performance (Adams, Gray and Nowland 2013). Although there is an implication that increased female representation in the boardroom results to improved organizational performance, it is not to be assumed that including more females in the boards results to higher organizational performance. An article from Fightingfeminism (2012) indicates that the end of 2010, a research by FTSE found 12.5% women in 100 boards held executive positions while only 15.6% of non-executive directors. The implication was that for every organization whose board had three or more women in the board there was 45% achievement in returns higher than companies that had less than three or no women representation in the boards. In addition, in the UK, the operating outcomes are surpassed in organizations where the board observes gender diversity as compared to the companies where no woman was present in the senior management teams with 56% on average. In 2013, Treanor reveals that the percentage of women in non-executive positions has risen to 24% up from the 2011 figure of 15.6% proportion. Conversely, the increase in the number of females holding executive positions has taken a slow increase rate as it stands at 6.1% by 2013 up from 5.5% in 2011. As of 2013 however, some organizations had not yet taken up the challenge to include women in their board seats which then meant that some organizations remained under the governance of an all-male board. According to Treanor (2013), including women in boardrooms is only a temporary solution comparable to applying makeup. In order to have effective boardrooms, there is need to develop and manage the scattered female talent that characterizes the middle level management in organizations. Adams, Gray and Nowland (2013) reveals that the manner in which organizations develop and manage talents within its management before appointing them in top executive levels results to the differences in the outcome of a diversity inclusive boardroom. Adams, Gray and Nowland (2013) discovered that although inclusion of women in the boardroom results to added advantages like additional monitoring, some organizations never benefit. Treanor (2013) reveal that of all organizations that urge for increased representation of women in boardrooms, 30% of them have proven mentoring schemes as a way to try and develop and manage the middle management women who might get to the top and drive more women to the top and into executive roles. The move to develop and grow women in middle level management is crucial for organizations such that the enforcement is not by quota but by choice. Some organizations that are enforcing women inclusion into boardrooms by choice include National Grid and WPP advertising group which, amongst others have hit the 25% target. In addition, other organizations have exceeded the set target to get up to 44% women representation in their boardrooms for Diageo Drinks Group (Treanor 2013). Although the inclusion of female board executives could be attributed to the success of some organization, it is important to for organizations that wish to succeed to understand that they have an important role in ensuring women progress successfully through their organizations structures. The implication in this case is that organizations that promote the growth of women up to the executive level would rarely fail to gain the associated benefits. MacGregory (2013) also reveals that there is need to promote and nurture women coming up through the leadership pipeline and promote their confidence. Through promoting the confidence of upcoming women in leadership, the implication is the presence of strong female representation within boardroom (Terjesen, Sealy, & Sighn 2009). This paper has discussed in details the deficiency in the representation of women in boardrooms. In addition, the paper has discussed ways through which organizations can deal with the underrepresentation of women and more particularly embracing the quota rules. MacGregory (2013) reveals that embracing women empowerment within organization’s boardrooms results to sufficient and relevant participation of women in both organizational governance and decision making. The promotion of the campaign that women should be represented effectively in boardrooms is a timely challenge to all-male boards whose composition does not promote gender diversity amongst policy makers (Terjesen, Sealy, & Sighn 2009). Bibliography Adams, R. Gray, S. and Nowland, J. 2011. Does Gender Matter in the boardroom? Evidence from the market reaction to mandatory new director announcements. Available at SSRN: http://ssrn.com/abstract=1953152 or http://dx.doi.org/10.2139/ssrn.1953152 Buchanan, M. 2012.the Gender Diversity Delusion [online]. Available at: http://www.iea.org.uk/blog/the-gender-diversity-delusion Els, J. 2013. Twitter Bring gender Diversity into the boardroom [online]. Available at: http://www.change.org/petitions/twitter-bring-gender-diversity-into-the-boardroom Fightingfeminism. 2012. Arguments for improving gender diversity in the boardrooms [online]. Available at: http://fightingfeminism.wordpress.com/2012/11/11/arguments-for-improving-gender-diversity-in-the-boardroom/ Howard, M. 2013. Corporate Governance: the Key issues of 2013 [online]. Available at: www.charlesrussell.co.ke Joecks, J. Pull, K. and Vetter, K. 2012. Gender Diversity in the boardroom and firm performance: what exactly constitutes a critical Mass? Available at SSRN: http://ssrn.com/abstract=2009234 or http://dx.doi.org/10.2139/ssrn.2009234 MacGregor, R. 2013. Women on boards’ event to celebrate gender diversity in the boardroom [online]. Available at: http://www.idealog.co.nz/news/2013/07/women-boards-event-celebrate-gender-diversity-boardroom Neville, S. and Treanor, J. 2012.Research highlights lack of women in executive roles [online]. Available at: http://www.theguardian.com/business/2012/dec/12/research-lack-women-executive-roles Terjesen, S. Seally, R. and Sighn, V. 2009. Women Directors on Corporate Boards: A Review and Research Angenda. Corporate Governance: an international Review 17(3), pp. 320-337. Treanor, J. 2013, October. FTSE 100 companies still 66 female directors short of boardroom target [online]. Available at: http://www.theguardian.com/business/2013/oct/07/female-directors-boardroom-target-business-cable Treanor, J. 2013, October. Melrose appoints first female board member [online]. Available at: http://www.theguardian.com/business/2013/oct/09/melrose-appoints-female-board-member-ftse-100 Read More