Opportunities Abound for Shareholder Activism on Gender Diversity

By Melissa J. Anderson (New York City)

By now, the connection between women and business success is well-known. But as many times as studies have linked diverse boardrooms with better performance, companies seem to be making few moves toward gender balanced boards.

This spring, Deloitte released the third edition of its report, “Women in the boardroom: A global perspective,” which detailed the excruciatingly slow pace of progress in boardroom gender balance. Despite rapid elevation of discussion on the topic of boardroom diversity, action has been slow. Even in places like the UK, which initially put a concerted effort behind hiring more women to FTSE 100 boards, hiring of women to director seats is plateauing.

Deloitte believes that it may be possible to speed this process up. Up to now, relatively few shareholders have gotten involved in efforts to change the gender balance on the boards of the world’s largest companies. Dan Konigsburg, managing director of the Deloitte Global Center for Corporate Governance, Deloitte Touche Tohmatsu Limited, comments, “Given that shareholders are the owners of the company, one might expect they should have the strongest interest in the benefits of more diverse boards, an interest that should benefit the value of their portfolios.”

So far, Deloitte says, there have been very few shareholder proposals addressing diversity in the boardroom. This is a mistake, Konigsburg says. “We see diversity as a business issue. …We also believe that greater diversity – not just in gender but in background, in experience and in diversity of thought – makes for more effective teams of people.”

Expecting More from Shareholders

The report notes that women still hold a small share of board director seats around the world. For example, in the US, women are only 12.6 percent of director seats in Deloitte’s sample of 1,772 listed companies. This is an increase of only 0.3 percent since last year.

Up to this point, most of the pressure on companies to hire more female directors has come from governments, regulators, and industry groups. Perhaps the missing piece of the puzzle that could really influence companies to make a change is shareholder action.

Konigsburg writes in the report:

“What remains as noticeable today as in 2005, however, is that much of the impetus for change has come from governments and regulators and, apart from notable efforts of groups like the 30% Club in the United Kingdom or the 30% Coalition in the United States, not from shareholders directly. This is odd, because shareholders are the owners of the company; one might expect they should have the strongest interest in the benefits of more diverse boards — an interest that should benefit the value of their portfolios.”

Groups like the 30% Coalition are working to increase the proportion of women on boards to 30 percent by 2015. The Coalition has amassed several mainstream members, CalSTRS and New York City Pension Funds, and includes investors representing over $1.2 trillion in assets under management. Several members – like Walden Asset Management and Pax World have agreed to vote no on their proxies if there are no women on the board. Investors have filed resolutions at 20 companies so far, but they won’t all go to a vote, and they don’t mean investors won’t buy stock of there are no women on a particular company’s board.

While Deloitte commended the Coalition for its work, the firm still believes more can be done. “In the United States, the Securities and Exchange Commission now requires disclosure of how diversity is considered on the board, yet there have been few demands elsewhere from asset owners for more disclosure to allow investors to make up their own minds about a company’s seriousness of purpose.” Konigsburg continues:

“Whatever the reason, that shareholders are less heard on this issue is clearly to the detriment of further progress in many places. The debate about whether and how women should play a larger role in boardrooms will be strengthened if everyone participates: managements, boards of directors, business associations, policy makers governments, and shareholders.”

Engaging more shareholders in the work to improve boardroom gender diversity could improve not only the stock performance of companies. Having more women on boards has been shown to have a trickle-down effect. Companies with more boardroom diversity tend to have more diversity overall. And certainly, as the global purchasing power of women becomes more recognized, companies will want to be sure the diversity of their leadership better represents their customers and clients.