The Importance of Gender Diversity on Municipal Boards

At the November City Summit of the National League of Cities in Los Angeles, the Women in Municipal Government group (WIMG) offered a workshop on board diversity based on gender. (Wednesday November 7, 5:00 – 6:00 p.m.) Why hold a special session devoted to women’s inclusion? Female underrepresentation on nonprofit boards generally is an established fact: While 43% of board members are female among nonprofits nationwide, only about one in eight nonprofit executive committee members are female. (Edling, et al.) The race is on to remedy this imbalance, for a simple reason: boards with greater gender equality get better results.

The study of gender diversity on boards is not yet rocket science. As social scientist Renée Adams reports from the field, “more research needs to be done to understand the benefits of board diversity. The literature faces three main challenges: data limitations, selection and causal inference.” (Adams) The research effort itself furthermore smacks of tokenism. Terry Lundgren, CEO of Macy’s points out an insidious double standard: “I’m often asked, what’s the business case for women on boards. No one ever asks me what’s the ROI for another white male on my board?” (Halter)

Despite these limitations, early data suggests that gender balance on boards leads to outperformance. The private sector has the most measurable results (and the biggest budgets for measuring). Studies of corporations show significantly improved performance by companies that have boards with more women. Studies from the private sector find six demonstrable correlates of increased female representation on boards of directors:

  1. Higher return on equity. The ROE of companies with the highest percentages of female board directors outshined that of other companies by a whopping 53 percent. (Halter)
  2. Stronger return on sales: Retail revenues were 42% higher among companies with the greatest percentages of females on the board. (Halter)
  3. Increased returns on invested capital: Companies with the highest percentages of female directors showed ROI 66% higher than that of the least gender-diverse counterparts. (Halter)
  4. Better decision-making. The Yale School of Management has found that higher quality decisions are made on boards with more women.
  5. Reduced operational risk. The same Yale study found safer operational protections in place when more women were on the board.
  6. Faster innovation. In the same Yale study, companies with the most gender-diverse boards had an accelerated rate of innovation in their organizations.

While these metrics speak loudly, even the private sector has a long way to go in balancing its boards. Only 28 companies have boards with 40% or more of the members female. That’s only 3% of the Global Fortune 1000! Even in Scandinavia, which often sets the bar on gender parity, men hold an overwhelming majority of corporate board seats. (Edling, et al.)

Municipal boards can apply the lessons of these private-sector studies. The case for doing so is overwhelming. There is every reason to believe that increased female board representation causes the impressive feats of outperformance. Both board selectivity and public relations increase as women join boards.

Doubling the candidate pool naturally allows boards to be more choosey as they recruit new directors. A SUNY study of 53 nonprofit boards in New York and Connecticut shows that passion is the single greatest indicator that any board member will improve group dynamics and make a significant contribution. That passion is no more likely to be found in one sex or the other. Nevertheless, stereotypes persist that women are less capable in authoritative roles.

The talent advantage of boards approaching gender equity has a compounding effect: As more women serve on boards, they become role models and mentors who cultivate skills in other women. Such mentoring of female board aspirants by male role models is declining; the #metoo movement has led some men in leadership positions to stop meeting one-on-one with women to provide career guidance.

Positive female role models also counter a negative psychological cycle discouraging female leaders from reaching higher. The Harvard Business Review reports that, without such positive momentum, a downward spiral keeps women from aspiring to leadership. When the majority on a board deems women less capable nuisances to be tolerated, it “tell(s) women who have managed to succeed that they are exceptions and women who have experienced setbacks that it is their own fault for failing to be sufficiently aggressive or committed to the job.” (Ledbetter)

PR soar as women join boards. The private sector has found that organizations are considered more “friendly” as women fill board seats; they also are considered more concerned about other people and the environment. Research at the Pepperdine Graziadio Business School shows that a 10 percent increase in gender diversity of a corporate board increases by 17% a company’s “corporate social responsibility” rating. (Ledbetter)

While a warmer public persona could be considered a mixed blessing in business, it is vital to community engagement in municipalities. After all, constituents attend the board meetings, and suspicion quickly accelerates. As municipal boards sometimes approve multi-million dollar contracts, any hint of partiality fuels conspiracy theories. The public is far less likely to suspect gender-based cronyism if the board itself includes women.

Laws may soon require municipalities to equalize gender representation in government leadership. Iowa has mandated improved gender balances at all levels of city and county government. Impressed by the preliminary data, some countries even mandate board gender balance as a strategy to bolster their national economy.

Smart municipal boards are redoubling their initiatives to increase gender equality on the board of director. After it had fizzled out years earlier, New Jersey’s chapter of Women in Municipal Government was revived five years ago. Yale’s School of Management, which focuses on non-profit and civic leadership, hosts workshops to teach women how to create a résumé that will get them into the boardroom.

The focus of municipal initiatives is usually female networking. In New Jersey, the state WIMG organization travels extensively to small municipalities, sharing with boards best practices for more gender-balanced recruiting. They also bring together female constituents to encourage them to consider seeking out leadership positions. State representatives even meet with female officials to ask them what support they need – in the hope that fewer of them will leave their post out of frustration.

Municipalities can boost community engagement and tap into a larger talent pool that mirrors the gender demographic in their constituencies. At the present rate, it would take 50 years to reach gender parity on U.S. boards. Ken Chenault, CEO and Chairman of American Express, raises the obvious question: “If you were told it would take over 50 years to achieve a business objective, would you accept it?” (Halter)

 

Sources:

Adams, Renee, “Women on Boards: The Superheroes of Tomorrow?” The Leadership Quarterly 27:3, June 2016

Ledbetter, Bernice, “The Business Case for Advancing Women on Boards,” Huffington Post

(updated May 11, 2017).

Chapple, Larelle and Humphrey, Jacquelyn, “Does Board Gender Diversity Have a Financial Impact? Evidence Using Stock Portfolio Performance,” Journal of Business Ethics 122:4 (July 2014). 709-723

Edling, Christofer; Hobdari, Bersant; Rondoy, Trond; Stafsudd, Anna; Thomsen, Steen, “Testing the ‘Old Boys Network”: Diversity and Board Interlock in Scandinavia,” chapter in Kogut, Bruce, The Small Worlds of Corporate Governance MIT Press 2012

Erhardt, Niclas L.; Werbel, James D.; Shrader, Charles B., “Board of Director Diversity and Firm Financial Performance,” Corporate Governance: An International Review 11:2 (2003), 102-111.

Gabris, Gerald T. and Nelson, Kimberly L., “Transforming Municipal Boards into Accountable, High-Performing Teams: Toward a Diagnostic Model of Governing Board Effectiveness,” 36:3 (2013)

Halter, Jeffery Tobias, “The 4 Things Your Company Should Do to Advance Women – Lead!” Huffington Post, (updated Dec. 06, 2017).

Rhode, Deborah L.; Packel, Amanda K., “Diversity on Corporate Boards: How Much Difference Does Difference Make?” Delaware Journal of Corporate Law 39:2 (2014), 377-425.

Seaworth, Angela D. “Limited Leadership: An Examination of Nonprofit Board Diversity and Whether Selection Processes and Executive Director Perception of Governance Models Affect Composition,” Dissertation, Indiana University – Purdue University Indianapolis 2016

Siciliano, Julie I, “The Relationship of Board Member Diversity to Organizational Performance,” Journal of Business Ethics 15:12 December 1996, 1313-1320

Stone, Jessi, “Women’s Municipal Government Group Reorganizes,” Smoky Mountain News, May 2, 2018

Yale School of Management, Promotional material for upcoming executive education program. At https://som.yale.edu/programs/executive-education/for-individuals/leadership/women-on-boards


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