While countries like Germany legislate against all-male company boards, the US chips away at the status quo without government quotas or targets.
“It’s easy to say, put a woman on the board,” said Charlotte Laurent-Ottomane, executive director of Thirty Percent Coalition and former executive vice president at Alcatel-Lucent. “We want a qualified woman.”
Of course, many women in the US are qualified and willing to serve on boards, especially because of the opportunity it affords for a lucrative second career, she said.
“The problem is not on the supply side,” Laurent-Ottomane told Advisen. “We’re plateauing because boards in the US have no term limits. How do they get rid of the people in the room? It requires changing of bylaws.”
The coalition’s goal for female board representation of 30 percent—the proportion widely regarded as constituting critical mass—by 2016 was set when women accounted for 16.9 percent of S&P 500 board members in 2013. That goal will have to be reset in October.
The US isn’t exactly a laggard, though, when it comes to gender diversity, having achieved 19.2 percent representation on S&P 500 boards as of last year, according to Catalyst, a nonprofit research group focused on women and business. The rate compares with 3.1 percent in Japan, 17 percent in Switzerland, and 35.5 percent in Norway, where a legislative quota of 40 percent has been in effect since 2002.
The US will be leapfrogged by Germany, where female board representation stood at 18.5 percent before it passed a law in March requiring 100 of the country’s best-known companies to give 30 percent of their supervisory, or non-executive, board seats to women starting in 2016.
But the lack of term limits on boards in the US, especially compared with other Western economies, is seen as hindering the development of diversity and shareholder “engagement” in general. Just 40 percent of public and 64 percent of independent boards do limit the number of consecutive terms that a member or director can serve, according to the Association of Governing Boards.
“In the US, shareholders don’t have the ability to get directors onto boards,” said Deborah Gilshan, head of sustainable ownership at RPMI Railpen, a UK pension fund with $32 billion in assets under management, including a “significant portion” in the US.
“They can’t nominate them,” Gilshan told Advisen. “They can’t get rid of them and there are no term limits.”
Shareholders in the US are focusing on improving their rights through seeking proxy-access—the right to nominate directors—and majority voting standards, which allow them to vote underperforming directors off the board, she said.
Clare Payn, a corporate governance management consultant and member of the 30% Club in the UK, agreed that the lack of term limits and shareholder access to boards in the US stand in the way of gender and “thought diversity.”
“Board diversity in general is needed,” Payn told Advisen.
Since the UK club began pressuring board chairmen and the public for greater inclusion in 2010, female representation has more than doubled to 25.4 percent on FTSE-100 company boards.
But while everyone interviewed for this article cited the absence of term limits as a major obstacle to female board representation in the US, none advocated government intervention.
A recently opened 30% Club in the US, which didn’t respond to requests for interviews from Advisen, echoed those sentiments on its website.
“Countries with boardroom quotas have failed to develop the pipeline,” it said, adding that, in Norway, only 2 percent of listed company CEOs are women.
It even advocates for a broader focus than boards.
“Lack of fixed term limits for non-executive directors means a sole focus on boards would be misplaced” in the US, the site said. “Recognizing its distinct corporate governance framework, the aim from the start is better gender balance at senior management levels rather than a specific focus on boards.”
Catalyst shares that view. In fact, the centrality of the executive in corporations and on boards in the US points to a synergy between the two.
“It’s not a question of ‘or,’ but ‘and,’” said Kerry Goodenow, a senior associate at the group’s Corporate Board Services, referring to efforts to promote women both on boards and in executive ranks.
Catalyst research has shown that within five years at Fortune 500 companies, a 10 percent increase in female board membership was followed by a 21 percent increase in female executive presence. Earlier findings also showed higher financial performance at the companies with the most women on board and in executive ranks.
There is one other widely cited obstacle to board gender diversity in the US, and that is experience as a CEO.
“It’s the perception of the skills matrix needed that has to change,” said Goodenow of this Catch-22. Catalyst research shows just 51 percent of directors at Fortune 500 companies actually have prior CEO experience.
