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Why Your Next Board Member Should Be a Woman

“A woman . . . is not better, wiser, stronger, more creative, or more responsible than a man. Likewise, she is never less.”

Imagine the following: you are sitting, cap in hand, among the selected honor students at your college graduation. You can’t help but think back to four years ago when you made the decision to sacrifice employment to pursue a college education. You then recall the entire summer you spent preparing for the SATs, the countless hours of studying in the library, and the extensive time you devoted to participating in extracurricular activities. Now imagine that after graduation you are offered an interview for your dream job but when you get there, the human resources director tells you “I just can’t hire you, honey, even though you are more than qualified. If I put you on the floor with all those men, I would never get any work done.”

The scenario is based on Priscilla Berry’s story. She graduated from the University of Mississippi with degrees in English, Literature, and Humanities. She was unable to find employment – not because she was unqualified, but because she is a female. Priscilla’s experience is certainly not unheard of. She is just one among many other women who have been discriminated against in the workforce because she is a woman.

Women, especially those seeking positions on corporate boards, continue to face challenges that men do not. Although women and men currently comprise roughly equal portions of the population, only 3.6 percent of Fortune 500 companies have a female CEO and only 14.7 percent of U.S. companies have a female board member. Furthermore, although 25 percent more women than men graduate from college and women comprise almost half of the student bodies in business and law schools, 235 Fortune 500 companies have one or no women on their board of directors.

egjuka1Many women are more than qualified to attain board membership positions. On average, women enter and leave college with higher GPAs than men and roughly the same number of women and men graduate from professional schools. Women also score higher on IQ tests than men. Nevertheless, the number of women in senior leadership positions has declined in the past few years!

Why increasing the number of women on U.S. corporate boards even matters?
Increasing board diversity would not only promote equality but would also be beneficial for other reasons. Evidence shows that corporations whose boards contain more women are more effectively and efficiently run than those that do not. By being able to listen and address controversial issues better than their male counterparts, women bring a leadership style that benefits the boardroom dynamics. Women are also more likely to make better investments than their male counterparts. Some studies suggest that the global financial crisis of the late 2000s – early 2010s could have been prevented if there had been more women on corporate boards and in financial banking. Accordingly, increasing board diversity would also increase profitability, enhance corporate governance, and benefit the community as a whole.

What has U.S. done to increase board diversity?

Regulation S-K Item 407(c)(2)(vi):

Describe . . . how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy [.]

The United States Securities and Exchange Commission (“SEC”) has recognized the importance of increasing board diversity. Accordingly, it has amended Regulation S-K Item 407(c)(2)(vi) to require corporations with a diversity policy to disclose how the policy is implemented and how the nominating committee “assesses the effectiveness of its policy.” However, the amended Regulation S-K alone will not dramatically increase female board membership because the regulation does not require corporations to consider diversity and does not define the term “diversity.”

Second, even those companies that have diversity policies in place are free to define diversity without any mention of gender at all. The SEC stated that corporations should “define diversity in ways they consider appropriate.” Accordingly, under Regulation S-K, a corporation is free to define diversity solely as “differences of viewpoint” and exclude concepts such as gender and race. Exclusion of these terms can limit the extent to which the amended Regulation S-K increases the number of women on corporate boards.

So what should be done to increase board diversity?
In light of the dearth of women in corporate leadership positions, three things need to take place:

    1. the SEC should define “diversity” in Regulation S-K;
    2. Congress should enact a law which would give corporations a tax credit for every female elected to their board; and
    3. corporations should implement outreach programs to increase board diversity.

First, to increase gender diversity on corporate boards, “diversity” cannot be left for companies to define “in ways that they consider appropriate.” Therefore, the SEC should amend Regulation S-K to define the term “diversity” in the following way:

Diversity refers to many demographic variables, including, but not limited to, race, gender, religion, national origin, education, professional experiences, differences of viewpoint, and other individual qualities that contribute to board heterogeneity.

Second, Congress should pass an act which would give corporations a tax credit for every female that they elect to their board. It is well established that Congress has used tax credits to further goals that would benefit the country as a whole. For instance, to encourage hiring veterans, Congress passed the Veteran Opportunity to Work Act of 2011 (“VOW”). VOW gave a tax credit for each qualified veteran that an employer hired. Similarly, Congress should enact a law which gives corporations a tax credit for each female elected to their board.

Third, corporations should take measures and implement programs to increase board diversity. Outreach programs are generally effective and will likely increase the number of women on boards since many women need encouragement or information to become board members. Corporations can use a number of methods to promote board diversity. For instance, a corporation can choose to enforce term limits and rotate committee memberships, develop board registries where qualified and interested women could submit their names, or have human-resources managers and CEOs identify potential board candidates.

Some corporations have argued that taking measures to increase board diversity is unnecessary because, with time, the number of female board members will increase on its own. However, waiting for change to occur on its own is not a good choice because over the past decade, “the percentage of women on boards of U.S. companies has remained stagnant at 12.1-12.3 percent.” Even if the number of women on boards will increase on its own, the United States cannot afford to waste time in this difficult economy. It’s more important than ever to take advantage of everyone’s skills: both female and male.

It is time that we, just like many other countries, take additional measures to increase diversity in the workforce, and more specifically in the boardroom. Having 85.3 percent of board positions in the Fortune 500 companies composed of men is not only unfair to women, but it also decreases a corporation’s profitability, reduces the quality of governance, and negatively affects society in general.

My three-step proposal is likely to be effective because it would give hard-working women like Priscilla a much better chance to get elected to a board. For instance, when a corporation is seeking to elect a new board member, the proposed SEC definition of diversity will encourage and remind the board to consider gender in the election because of the requirement to report and because corporations can no longer exclude gender from their diversity definitions. Additionally, that corporation would have an extra incentive to consider gender because it would receive a tax credit for electing women as opposed to men. Finally, that corporation’s engagement in diversity outreach programs would give women an additional opportunity to become board members because it would identify more eligible women.

In conclusion, additional measures are necessary to effectively increase gender diversity on corporate boards. Unless the SEC, Congress, and corporations across the country take measures, the battle to increase board diversity will continue to be a difficult one.

Banner image from ShellVacationsHospitality. Licensed under Creative Commons – Attribution 2.0 Generic.

Enkelena Gjuka is the Editor-in-Chief of the Journal of Civil Rights and Economic Development.