Women are gradually breaking another barrier. Their participation on company boards is being recognised as a business issue rather than a gender issue by global think tanks as well as Indian thought leaders. The paradigm shift in thinking about women’s board-level role may have gone uncelebrated on the just gone by International Women’s Day, March 8, but it holds the promise to become a common business strategy in the future.
In fact, having women on the company board means not only business, but more profitable business, says a recently released study. Saying that women occupy 17% seats at the board level at Fortune 100 companies, the whitepaper adds, Research suggests that companies with more diverse boards, especially gender-based diversification, have higher performance. The paper, Board Diversification Strategy, was prepared by Virtcom Consulting for California Public Employees Retirement System (CalPERS).
Higher Profits
The whitepaper quotes an earlier study by US-based research organisation Catalyst, which found out that Fortune 500 companies with women on boards outperform other companies on financials. The more the number of women directors, the better the results. For example, companies with three or more women directors show better than average results on three key financial indicators return on equity (16.7% against an average of 11.5%), return on sales (16.8% against an average of 11.5%) and return on invested capital (10% against an average of 6.2%). Correlation does not prove or imply cause, points out the study titled Bottom Line: Corporate Performance and Womens Representation on Boards. Its not the only such study. Management consultancy McKinsey’s Women Matter too found out that companies with a higher proportion of women on their boards deliver better than their sectors on return on equity (11.4% against sectoral average of 10.3%), operating result (11.1% against average of 5.8%) and stock price growth (64% against 47% for the sector).
Of course, none of it comes easy. Says Sminu Jindal, managing director of Jindal Saw Ltd, “It’s no more a battle of sexes. The only thing that matters is the true business acumen and nothing else. And women seem to have it in abundance, which is supported well by their other qualities.” Explains Kiran Mazumdar-Shaw, chairman & managing director, Biocon Limited, “Women have special attributes like compassion, sensitivity, multi-tasking and above all, the inner strength to excel. Women can use these attributes as well as their instincts, intellects, thoughts and ideas to their advantage. These qualities are helpful because women have to work doubly hard to succeed. When they fail, it’s not seen as an individuals failure. It’s seen as the collective failure of women. It puts extra pressure on women at the top to deliver.”
Women directors have been also reported to be better at negotiating mergers and acquisitions. According to the Sauder School of Business at the University of British Columbia, women swing deals at a lesser cost to their companies. The researchers came to this conclusion after studying the impact of gender influence on more than 400 acquisition attempts in the US. Sushma Berlia, president of Apeejay, Stya Group, attributes it to the fact that women don’t adopt an aggressive approach at the table. “For women, it’s not take it or leave it kind of attitude. It’s about finding win-win opportunities.” Without generalising, she adds, “I can say that women have an advantage in negotiations because they are more open-minded.”
Real Buyers
This edge helps women bond better with their customers, too. There reasons are obvious. “Since people of differing gender, age and cultural background bring different approaches, experiences and insights to solving the same problem or decision making, women too bring a different approach or value add in addressing an issue or evolving a customer strategy,” says Sulajja Firodia Motwani, managing director of Kinetic Motors. She adds, “More than often, women are honest, sensitive and perceptive and it helps them and their organisations in understanding consumers better. It’s a little wonder that she promotes her company products herself, particularly to women customers.”
Women are important for marketing because about 80% of household buying decisions are influenced by women, according to Euromonitor Internationals Who Buys What. The market intelligence organisation came to the conclusion after analysing 70 market sectors and 35 countries, including India, keeping in mind indicators like gender, age, wealth and education.
It fact, companies that focus on women do better than others. Goldman Sachs has created a Women 30 index of 30 MNCs focused on womens products. The index does much better than global equities, says the investment banking firm in a paper, Gender Inequality, Growth and Global Ageing.
The front runners in the investor community have been quick to see emerging trends and new business opportunities. They have started putting a premium on gender diversity. For instance, investment funds such as Calpers in the US or Amazone in Europe include this indicator among their investment criteria, while rating agencies (Core Rating, Innovest, Vigeo) are now developing tools to measure gender diversity, adds McKinsey in Women Matter.
Better Governance
Women’s presence at the board level does not only translates into more profits, but also better governance. Women-led boards are more accountable, sensitive to more groups of stakeholders, review even non-financial performance regularly and attach importance to gender representation at the board level, according to Women on Boards by the Conference Board of Canada, an applied research organisation.
Some even see a gender angle in the current financial meltdown. Poonam Barua, convener of the Forum for Women in Leadership, says that the current financial crisis is largely the result of an excessive obsession with high compensation, business performance and private greed without understanding that business needs to operate in a peaceful and stable environment with all its stakeholders which does not yield any dividends for shareholders. She adds, “The failure of accountability and governance is also indicative of the heavily male-dominated structure of company boards, and this may be the best time for companies to begin looking for that extra spirit that women can bring to company boards to enhance innovation, ethics, and diversity of thinking.” Barua is also an independent director on the board of Walchand Peoplefirst Ltd and director of PAMASIA, a corporate advisory firm.
Gender diversity also enhances corporate image and helps companies bond better with employees, shareholders and customers. A study by the European Commission, Cost and Effectiveness of Diversity, says, Diversity programmes have had a positive impact on employee motivation for 58% of the companies that have implemented them, and on customer satisfaction for 57%, while 69% of the companies noted an improvement in their brand image.
Though women diversified boards mean better business, there are only 616 (4.8%) women directors on 2,244 BSE-listed companies in India, according to Prime Database. The number of independent women directors is even lesser at 163 (2.5%). “One of the reasons for the low percentage of women could be the fact that their empowerment has picked up in India only in the last couple of decades. So, it will take time to show representation and results at the highest level,” explains Prithvi Haldea, chairman and managing director of Prime Database.
Breaking Barriers
In the meantime, its affecting women directors ability to realise their full potential. Says Vinita Bali, managing director, Britannia Industries, “The reality is that a few women have the opportunity to participate meaningfully in board deliberations because the composition of most boards is heavily skewed against them.” The key question, therefore, is one of adequately representing a diversity of views, of which gender is one significant aspect. “If boards are to deliver on the highest standards of governance, they need diversity of thought and capability and women with the right competencies bring that to the board,” she adds.
Its not only about having women on boards, but in adequate numbers. Having a single woman on a board is neither much fun, nor very effective in ensuring that the difference women can make is actually realised, caution Avivah Wittenberg-Cox & Alison Maitland in their recent bestseller, Why Women Mean Business (Wiley & Sons).
The need of the hour is to not only focus on womens education and empowerment, but other aspects too. In fact, its happening already. Kiran Mazumdar-Shaw says that gender inclusion is an issue that governments and the corporate sector the world over are keen to use as a demonstration of equitable and progressive thinking. She adds, “As a result, a number of affirmative actions are being taken, which can lend advantage to women in the corporate sector.”
But promoting gender diversity doesn’t mean building in gender reservation. Says Jindal, “It’s definitely not about reservation. Women at the top do not harbour gender bias. Men too have to learn to accept females as equal contributors, if not more.” She adds that corporate boards have started looking aggressively for a cross-section of capabilities. They are looking for geographic, ethnic and gender diversity and want directors, who can bring about a positive change in their organisations. Globalisation and cutthroat competition have thrown wide open the gateway to increased role of women in corporate governance and leadership.
Putting in place more gender diversified boards also calls for a fresh look at the structuring of companies and the conduct of businesses. Berlia says that increasing the number of women at the board level calls for setting a level-playing field rather than providing an enabling environ- ment. Firms have been structured to suit mens working. Even the rules of the game have been set keeping men in view. The need of the hour is to remove gender barriers rather than provide an enabling environment. Its about removing negatives rather than providing positives. She adds, “Businesses should be structured and operated in a way that tests women for their skills rather than gender.”
If these focused global studies are any indication, then thinking in this direction has been already triggered and the presence of women on corporate boards is set to become a business imperative in the future rather than remain a gender issue, promising a win-win deal for all.
Source: The Financial Express
Published on 12 March 2009