In the Boardroom, Diversity Begets Diversity

By Melissa J. Anderson (New York City)

According to a new study by Ernst & Young, companies are more likely to hire female board members if they already have at least one woman on the board. That is – once they recognize the benefits that board diversity can bring, they tend to want more.

The study, which examined the board composition of S&P 1500 companies from 2006 to 2012, also showed that companies that had never hired a female board director weren’t likely to start anytime soon.

According to Ernst & Young, 30 percent of companies have added at least one woman director since 2006. About 60 percent of them already had at least one female director.

Karyn Twaronite, Partner and Americas Inclusiveness Officer at Ernst & Young said, “We were surprised that boards that didn’t have any women didn’t add many women, especially despite evidence that the benefits of having multiple women directors reach beyond the boardroom. For instance, a Catalyst study showed a direct cause and effect to having at least three women on boards — it resulted in more women in these companies’ executive levels.”

The study also showed that larger companies tend to have more board diversity than smaller ones. Today, about 14 percent of board directors on the S&P 1500 are female, an increase of three percentage points since 2006.

Trends in Board Diversity

The study, “Getting on Board, Women join boards at higher rates, though progress comes slowly,” showed that larger companies were more likely to have diverse boards. Compared to the percentage of female directors across the S&P 1500 (14 percent, up from 11 percent in 2006), at S&P 500 companies, 17 percent of board directors are female (up from 14 percent in 2006).

According to Allie Rutherford, Associate Director of Corporate Governance at Ernst & Young, there are two causes for the disparity. She explained, “First, boards are increasing in diversity where there is greater acceptance for diversity. Often, large companies are more diverse, so their boards are more diverse. Second, larger companies have a broader pool from which they can select board candidates, so they are also are more likely to attract female candidates with the board qualifications they’re looking for.”

She continued, “The net result is once companies ‘get’ diversity, they get it, and a new, diversity focused paradigm is created.”

The same phenomenon explains why companies with female directors are more likely to hire more female directors. “Boards that experience diversity recognize the value of it and seek to increase it. Diversity begets diversity,” Rutherford said.

Developing Inclusive Environments

Twaronite said one area of the report that was particularly interesting to her was a study of director jobs. She explained, “Our new research helps bust a myth Catalyst has called the ‘Think Director, Think CEO’ myth. The Ernst & Young research shows that boards are no longer limiting themselves to former or sitting CEOs as their recruiting targets.”

“We see in the background of professional women directors in the U.S. that 63 percent of those joining boards in the last two years are current or former public company executives. Of these women, 80 percent served in executive positions other than CEO,” she continued. That means companies are looking to a broader pool of female candidates, like CFOs, to fill director seats.

She also believes companies are ready to move beyond “fix the women” approaches to diversity, and to engage in structural change. That means looking at issues like sponsorship and succession planning.

“Women need to get ‘mission critical assignments’ and ‘game changing roles,’ and companies need to make sure their female employees are getting the right exposure and experience that will make them candidates for these critical board positions,” Twaronite said. “Progress is not about ‘fixing the women’ through programs. It’s about ‘fixing the environment’ and realizing we are working toward diversity and inclusiveness more broadly, not just gender diversity, if we really want to move the needle.”

Companies can do this in a systematic way. “To prioritize gender diversity in succession planning, companies need to sponsor high-potential women so they can get the right experience and exposure they need to advance. Moreover, companies can expand beyond traditional qualifications and use a skills matrix to identify the broad set of qualifications necessary to compete to be on the board,” Twaronite explained.

Inclusiveness at Ernst & Young

Twaronite highlighted a few successful programs that Ernst & Young has undertaken to increase diversity throughout its ranks. The first, Career Watch, launched in 2004 to diversity the partner and principal pipeline.

“Career Watch helps women managers and senior managers, our mid-level professionals, gain access to the client assignments, leadership experiences, coaching, mentoring and formal learning opportunities needed to achieve promotions,” she said.

“Since its launch, there have been increases in both the percentage of women at manager level and billable hours by women on key accounts. The program is also closely aligned with pipeline/promotion discussions and business unit leadership reports.”

The other program is Ernst & Young’s Inclusiveness Leadership Program, which launched in 1999 to better support women partners and principals to help the firm’s highest-performing women get titled and account leadership roles.

“This three-year program creates formal mentoring relationships by paring women with Ernst & Young’s Americas Executive Board members and an external coach. Together, they create and implement a customized development program based on 360-degree feedback. It is not your typical mentoring program because Americas Executive Board members are the highest-ranking leaders in our Americas area,” she explained.

The results show some progress. “In 2011, women comprised 18 percent of Ernst & Young’s Americas’ partner and principal population and held 21 percent of its titled leadership roles. This is a promising increase from 2004 when 15 percent of women held titled leadership roles and in 1999 when it was 6 percent.”

She added, “We are also especially proud that 27 percent of Americas sub-area managing partners — who manage the 11 biggest P&Ls — are women.”