Critical Mass on Corporate Boards: Why Three or More Women Enhance Governance

Research & Action Report Fall/Winter 2006

by Sumru Erkut, Ph.D.
Does it matter to corporate governance whether women serve on a board? If so, does it make a difference how many women serve? That is, is there a critical mass that can bring significant change to the boardroom and improve corporate governance? My colleagues Vicki W. Kramer, Principal, V. Kramer Associates, and Alison M. Konrad, Professor of Organizational Behavior at the Ivey School of Business, University of Western Ontario, and I set out to answer these important questions. Our findings shed light on a growing problem for organizations and society: not enough women are serving on corporate boards to the corporations’ detriment.

In the face of the public failure of companies such as Enron and WorldCom, some corporate boards have been accused of being negligent or at least acquiescing to irresponsible corporate practices, too often focusing on short-term earnings and permitting runaway CEO compensation. Congress, the Securities and Exchange Commission, the media, and large shareholders have been pressuring corporations to improve their governance. With the goal of composing boards with the integrity and expertise necessary for appropriate oversight of their companies, nominating committees of corporate boards are enlarging the scope of their search for directors and dipping into new pools of candidates, including women. Yet some of the largest companies still have no women directors, and of those who do, only a small percentage have multiple women directors. The most recent Catalyst report (2005 Catalyst Census of Women Board Directors of the Fortune 500) indicated that women held only 14.7 percent of all Fortune 500 board seats. Among the Fortune 500 companies, 53 still had no women on their boards, 182 had one woman, 189 had two, and only 76 had three or more women directors. This is a disadvantage to these organizations, their employees, shareholders, and their customers. Based on interviews and discussions with 50 women directors, 12 CEOs, and seven corporate secretaries from Fortune 1000 companies and two search firm professionals, we found that a critical mass of three or more women can cause a fundamental change in the boardroom and enhance corporate governance. Our study adds to current research and writing on corporate governance, particularly work that draws attention to the importance of boardroom behavior and dynamics.

Women bring a collaborative leadership style that benefits boardroom dynamics by increasing the amount of listening, social support, and winwin problem-solving. Although women are often collaborative leaders, they do not shy away from controversial issues. Many of our interviewees believe that women are more likely than men to ask tough questions in the boardroom and demand direct and detailed answers. Indeed, as one male CEO put it, “the men feel a gender obligation to behave as though they understand everything.” Women also bring new issues and perspectives to the table, broadening the content of boardroom discussions to include the perspectives of multiple stakeholders. Women of color add perspectives that broaden boardroom discussions even further. The results of our study suggest that even one woman serving on a board can make a positive contribution. Having two women is generally an improvement, but corporations with three or more women on their boards tend to benefit most from women’s contributions. Three women normalize women directors’ presence, allowing women to speak and contribute more freely and men to listen with more open minds. As one woman director we interviewed summarized it, “One woman is the invisibility phase; two women is the conspiracy phase; three women is mainstream.”

Having three or more women serving on a board can create a critical mass where women are no longer seen as outsiders but where they are truly able to influence the content and process of board discussions more substantially, with positive effects on the corporate governance. Women’s contributions help boards fulfill responsibilities to multiple stakeholders and they help create a dynamic boardroom in which members work collaboratively while encouraging tough questions to be asked.

Are there enough qualified women available to substantially increase the representation of women on Fortune 1000 boards without sacrificing the quality of decision-making? If being a Fortune 1000 CEO is a prime qualification—as it has been often in the past—the answer is, “No,” because few Fortune 1000 companies are led by women. As it is, many white men on these boards don’t meet that qualification either. Although our respondents consider it important that some CEOs be present on a board, they see no reason why all board members must be CEOs and some good reasons why not all members should be CEOs as this, too, limits the diversity of perspective and may also result in narrowing of both views and processes. Indeed, because women tend to bring new perspectives, a new and desirable leadership style, and a willingness to tackle tough issues, they arguably have more of what it takes to contribute to boards than some CEOs.

To serve boards well, women need high-level corporate experience or the knowledge, skills, and abilities needed to contribute to board discussions. Although boards may need to reach a bit deeper into the senior-management ranks to find more women, women who have succeeded in business careers in corporate America are eminently qualified to contribute to these boards—as are successful women entrepreneurs, lawyers, nonprofit executives, consultants, and academic scholars.

Further, in order to achieve a critical mass, nominating committees should not try to be gender-blind when filling board vacancies or rest on their laurels when they can point to one or two women on their board. People who claim gender-blindness may appear to be driven to seek merit, but they often overlook the availability of highly qualified female candidates who are not plentiful in the traditional feeder pools such as the Fortune 1000 CEOs. More importantly, gender-blindness also means being blind to the value of board diversity for bringing various perspectives to the table, bringing knowledge about key constituencies, and enhancing the quality of discussion. Indeed, an insistence on “merit” overlooks the fact that the status quo equates merit with the characteristics of the historically white male board members and overlooks the fact that diverse perspectives add value to corporate governance and should be incorporated into the definition of merit.

My colleagues and I strongly urge boards to recruit and retain women leaders to serve as directors, we further encourage them to go beyond token representation to make a real change.