Getting More Women into the Boardroom: Address to the Deloitte/NZIM Women in Business Networking Series

27 March 2007

Getting More Women into the Boardroom:
Address to the Deloitte/NZIM Women in Business Networking Series

Deloitte House
Auckland

Thank you Wendy for the welcome, and thank you Deloitte, and the Institute of Management for the invitation to speak tonight. I was particularly pleased to be invited to meet such an amazing group of women on the subject of enabling women to take a greater role in corporate governance, because there are so many women in the room who belie the catch-cry of the 63 per cent of New Zealand’s top 100 listed companies who have no women on their boards, that the women just aren’t there. It is my contention that the women are there; most companies just don’t know where to look.

Before reminding you of our performance in this regard, I want to make two points clear from the outset. First I don’t think that this is a conspiracy designed to keep women away from the boardrooms. And second I don’t believe in tokenism – I have a business case to make to support the benefits of more women on boards. I will return to both of those – but first the facts.

The figures most often quoted come from the 2006 New Zealand Census of Women’s Participation, prepared by the Human Rights Commission and the New Zealand Centre for Women and Leadership.

The census showed that women continue to be under-represented in leadership roles in most sectors, but if there was a prize for last place, it would go to
the New Zealand business community.

In that census, only 7.1 per cent of directors on the Top 100 listed New Zealand companies were women. The only parts of the New Zealand economy that were worse, were the debt market and the New Zealand Alternative Market, which couldn’t even manage 6 per cent of women on boards.

At 7 per cent, the proportion of directors of top NZX companies is not only poor in absolute terms, but is also behind many of the countries with which New Zealand likes to compare itself. For instance, women are:

•22 per cent of company directors in Norway
•13.6 per cent in the United States
•10.5 per cent in the United Kingdom, and
•8.6 per cent in Australia – yes, even Australia does better.

And although we still have a long way to go in other parts of the New Zealand economy, 7 per cent is also low compared to partnerships in the top legal firms, which stands at 17 per cent, or directorships in Crown companies at 35 per cent.

So New Zealand is particularly bad, especially when it is apparently a given that women are running the country – I am sure you have heard that too.

The truth is that a small number of high profile New Zealand women have broken through the glass ceiling, but the fact remains (to paraphrase a quote I have read) the carpet remains very sticky. There is an issue about how we enable more women to break through the glass ceiling, so that it no longer remains as the invisible but real barrier to advancement.

At some point someone will notice that we no longer have that magic moment in time when women held all the top constitutional positions in New Zealand and the CEO of the largest company was a women. That is already an historic view and I am sure if it were to happen again in my lifetime, the same media response would follow; although I doubt if all positions were again held by men any mention would be made at all.

Perhaps that would represent a return to the natural order of things that requires no comment. But I am being facetious. I will know that women have achieved one measure of equality when the gender of the appointee is irrelevant to the coverage, although I did feel that was a long way off when the a letter to the Dominion yesterday observed the tragedy of the only letter published in response to a story on the meeting between Helen Clark and Condoleezza Rice commented on their clothes.

Let me now turn to the issue of the women just not being there. As I said earlier I don’t think this is a conspiracy to keep women out of the boardroom and I have a simple theory about why this happens. It’s about the people we know and have worked with or who we personally know have the skills we are looking for. If a Board is looking for a new director and is looking to add strength in a particular area, they will shoulder tap the ones they know. If there are no women that they personally know in this particular sphere, they obviously do not stand a chance. All male boards can be self-perpetuating in this regard. And those who think all this talk about women on boards is about tokenism will be resistant to looking outside their networks or comfort zone.

I’ve already mentioned the 35 per cent of women directors on Crown company boards, which is probably the closest state sector equivalent to the 7 per cent on boards of the top listed companies. The government has a wide range of boards and committees with governance functions, not all of which are commercial. The Ministry of Women’s Affairs’ Nominations Service recently undertook the first whole-of-government stock-take of membership of this full range of state sector boards and committees and found that women represent 41 per cent of the total government-appointed membership of those boards. That’s still not equality, but it’s significantly better than 7 per cent and it is a figure that is steadily improving.

So if the government can achieve this level of participation, then that says the women are there. It is true that we have achieved this by setting a 50/50 target by 2010. By having a target we have to measure what the participation rates are and it forces us to consider across government what we are doing to achieve that.

As I said before everybody tends to go to their own networks first when looking for people to fill gaps on a board or committee and that if women are not part of those networks, they will not be appointed.

What we did in government was to establish an effective mechanism to find women with suitable skills and background and then put those women forward to the wide range of agencies that make the appointments. Those women still have to compete with all the other candidates, based on what they bring to the position, but at least they are on the radar – and because there really are women out there with the skills to serve on boards, many of them are appointed.

There’s no rocket science here – the Nominations Service maintains a database of suitable women and more importantly works closely with appointing agencies to understand their needs. It then uses its database to find women who have the attributes needed for the job, and puts them forward. The key is only nominating strong candidates – if the Service cannot find a woman with the skills needed, then it doesn’t nominate.

Now, as the Minister responsible for this service, I cannot resist a small advertisement at this point: I know there will be women in this room with board or other suitable experience who are not on that database; who may be prepared to be considered for service on a state board. If so, I urge you to contact the Ministry or check out the ‘women on boards’ section on the Ministry’s website.

So the state sector has found a way of accessing the huge talent pool of professional and business women; but, the next question is does it make any difference? I believe it does.

While there is little local research, there is a growing body of evidence from international studies that suggests that diversity on boards is, as the title of one Canadian study puts it: ‘not just the right thing, but the bright thing’.
A number of studies have found an association between stronger financial performance and better representation of women on boards.

I’ll give you a couple of examples:
•A 2001 Catalyst study of 353 Fortune 500 companies found that the group of companies with the highest representation of women on their top management teams experienced better financial performance than the group of companies with the lowest women’s representation: return on equity was 35 per cent higher, and total return to shareholders was 34 per cent higher.
•Another study of Fortune 500 companies between 1980 and 1999 conducted by Pepperdine University found that firms with a high number of women executives outperformed their industry medians on a range of measures of profitability. The firms with the best records of promoting women were consistently more profitable than the others.

These, and other studies, point to a number of potential benefits for companies from better representation of women, and more diversity generally, on boards. For instance:

•Groups that have more diverse skills, knowledge and experience have the potential to consider a greater range of perspectives and make higher quality decisions.
•Diverse teams can leverage their diversity to avert and solve problems. For example, diversity on boards can help companies manage key constituencies, including shareholders and employees.
•Companies that take advantage of their female talent internally, may be better able to develop products and services that could appeal to female consumers.
•Greater diversity in leadership can help a company build its reputation as
a responsible corporate citizen that understands and is responsive to its community

In the UK the Tyson Report on Recruitment and Development of Non Executive Directors put it this way:

‘… the most fundamental business rationale for a company’s commitment to greater diversity in the boardroom, like its commitment to diversity at all levels, is a simple and compelling one – the desire to find and employ the best talent’.

When I became Minister I asked myself whether there was a direct role for government in helping businesses tap into the ‘best talent’. On board appointments, we have found a model that works for government, but that does not necessarily mean the same model would work in the private sector where there is diverse ownership and a greater diversity of interests.

Nevertheless, last year I asked the Ministry of Women’s Affairs to investigate the range of possible approaches to influencing the participation rates of women in the private sector. I made it clear at the time that we would not be looking at things like government-set quotas or legislation because we believe that any successful approach would involve working closely with businesses. While targets can be good, in my view they are only effective if they are set by the organisation that has to measure performance against them. We have used our target of 50/50 by 2010 as our KPI.

What the Ministry discovered was that there were a number of people in the private sector who are thinking creatively about ways to help women onto company boards, and the conclusion that we came to was that it was better to provide advice, encouragement and support for these private sector initiatives than to offer a nominations service ourselves.

We are aware of three groups that are taking a web-based approach to developing nominations databases that will make women with appropriate skills more readily available to businesses. These are in addition to the existing Institute of Directors’ members-only Board Appointment Service, which matches members with board openings.

None of the web-based initiatives are fully operational yet, but women registered on the Ministry of Women’s Affairs database will be kept up-to-date with developments in this area.

The research undertaken by the Ministry of Women’s Affairs through
a review of international research and interviews with New Zealand business leaders confirmed that to be appointed to an NZX top 100 board you generally have to have first been a successful CEO, CFO or corporate general manager with significant operational experience, and with a deep understanding of asset and financial management. So we are looking at the women coming through the corporate ranks so we can do some shoulder tapping ourselves and ensure that they get the opportunities for governance experience and to become part of that pool of talent that the private sector draws on.

But there are other effective ways of ensuring that companies think about issues like diversity on their boards. Shareholder activism has made companies take much more notice of a wide range of issues from environmental concerns to ethical investment policies. I see no reason why shareholders should not also be concerned that the governance of the company is in the best possible hands and that the company really has made every effort to find the best men and women, rather than relying on the old boys’ network to fill vacancies.

Businesses use external specialists and spend huge amounts of time, effort and money to recruit top executives, but often the Board appointment process is less than transparent. Surely, who is appointed to the board should be as important a decision as who you appoint as chief executive or chief financial officer?

Ultimately change will happen – if the business case stacks up and I believe it does, then it will follow that attitudes and practice will change. We know from other social changes affecting women, however, that it can take an awfully long time. To give just one example: it is more than 30 years since it became unlawful to pay a woman less than a man for doing the same work, but today there is still a stubborn pay gap;
not all of which can be put down to factors such as the time many women spend out of the workforce having and raising children.

I know I will not be the Minister of Women’s Affairs who celebrates the day when even a quarter let alone 50 per cent of board members on the Top 100 are women, but I do hope to see some real progress in my lifetime.

I hope to see it because I hate to see the talent of women being wasted and I am convinced that New Zealand companies would be more successful it they used those talents; and that would be in all our interests.

Thank you.