05 marzo 2015

The importance of being Robert

Join the celebration of the International Women’s Day

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My middle name is Robert, but I am sure my parents would have thought more about making it my first name if they had known what a recent study has revealed: for large U.S. companies, more board seats are held by men named Robert, John, James and William than by all women combined. In fact, women hold only 16% of board seats in the U.S. While this is an improvement from 11% in 2011, at this rate it will take 80 years until women hold 50% of board seats.

In Latin America, things are even worse. A 2013 study of six countries (Argentina, Brazil, Chile, Colombia, Mexico and Peru) found that women hold only 5% of board seats. One might hazard a guess that this paltry 5% is far less than male board members named Juan Carlos, Miguel Ángel and José Luis (the three most-common male names in the region).

Jokes about names aside, this is serious business. The simple fact is that more diverse companies perform better. The same study cited above estimated that Latin American firms with women on their executive committees had 44% higher return on equity. For the U.S., a 2011 report found that firms with most diversity on their boards had 26% higher return on equity.

Recently, the NGO Catalyst has tried to unpack these numbers to find out why more inclusive firms are more profitable. It seems that inclusion leads to employees being more innovative and going beyond minimum requirements to help other team members and meet team objectives. And this, in turn, leads to higher productivity and profitability.

But these results also present a conundrum: if it is in a firms´ self-interest to be more inclusive and have more women in management positions, why isn´t this happening faster? There is no hard data to answer this question, so I can only speculate. Some potential  explanations might be:

  • The old boys network. Male board members and senior executives are members of an exclusive club, and they want to keep it that way for their own benefit. Before dismissing this explanation as a crazy conspiracy theory, one should think of all the exclusive private clubs in our countries that have long resisted attempts to diversify their memberships.
  • Weak corporate governance. In publicly held companies, shareholders—if aware of the links between diversity and performance—presumably would push to have more diverse employment and management since this leads to increased returns. But if corporate governance structures do not allow this shareholder input, it will not happen.
  • Ignorance by firms of the links between diversity and performance. This is a more difficult argument to make, since much of the evidence has been produced by firms like McKinsey&Company and EY—hardly organizations that are off the radar screen of major corporations.

Private and public sector: promote women

Both private and public sectors have a role to play in promoting women’s participation on boards and senior management.

Companies that have made significant progress—and there are many—can share the business case and  the nuts and bolts of how to get it done. At the upcoming CEO Summit of the Americas, the IDB will host a session with this focus. A McKinsey&Company report urges companies to make a commitment at the highest levels of management to diversity and set concrete targets; put in place women’s development programs to equip them with the skills and networks needed to advance; and put in place a series of enablers like child care and data systems to track progress.

Governments may want to consider giving the private sector a nudge. Norway was the first country to set a minimum percentage of female representation on corporate boards (40%) and other countries have followed, including Brazil with a 40% quota, albeit only for state-owned firms. These requirements are designed to improve gender equality—but they may have significant collateral benefits.

As we celebrate International Women’s Day, one would hope that we could celebrate the participation of more Marías, Camilas and Gabrielas on firm boards and in top management. Clearly we are a long way from where we need to be—both in terms of equal opportunity for women and of the productivity of firms in our region.

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