December 4, 2015

Gender Diversity and the Value in 'Refreshing' Boards

Appeared in Law360 on December 4, 2015. Originally appeared in the Kaye Scholer M&A and Corporate Governance Newsletter, Fall 2015

—by Diane Holt Frankle

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Earlier this year, I had the opportunity to speak to the chairman of the board of Ericsson. I complimented him on the gender diversity achieved on his board of directors; at the time, out of 11 nonunion board members, Ericsson had four women directors. He responded that once the board had decided to increase the representation of women on the board, there was no shortage of qualified women candidates, and he really valued the contributions of the women directors.

Board Refreshment is Likely to Continue

Anecdotally, it seems like there is a continuing move to “refresh” boards. We have had several reports out recently on public company board demographics, with some focus on the tenure of directors. PricewaterhouseCoopers’ 2015 Annual Corporate Directors Survey,[1] for example, reports that nearly 40 percent of directors now say that “someone on their board should be replaced,” up from 31 percent three years ago. In Silicon Valley, where I practice, a recent report by Lonergan Partners, “Insights: Who Runs Silicon Valley? Board of Directors Edition,”[2] notes that out of the SV150, 105 companies had “at least one member who had filled the seat more than ten years” and “27% of non-CEO seats were filled with directors with over ten years of service.” According to the Lonergan Report, there were three or more nonexecutive directors with over 10 years of tenure on the board at 46 companies in the SV150.

David Larcker, James Irvin Miller professor of accounting, Graduate School of Business, and faculty director, Corporate Governance Research Initiative, at Stanford University, observed in the Lonergan Report, “Is someone who has been on the board over ten years likely to show independence of thought, or are they more likely to have adopted existing management paradigms for the business?”

This is a question that nominating and governance committees may confront in the near term, as these committees consider the optimum composition of the board, especially given the recent focus on board refreshment by both institutional investors and activists.[3] Beyond the potential concern with independence, committees will be asking if the longer-tenured directors are still current on the business trends in the industry and able to provide valuable insights as the companies forge their forward-looking business strategies.

There may be other opportunities for boards to consider refreshment based on some other recent data about the aging of public company boards.[4] According to Spencer Stuart’s recent report,[5] the “trend toward older boards persists,” with the average age of S&P 500 independent directors of 63.1 being the same as in 2014, but about two years older than in 2005, and only 15 percent of S&P 500 boards have an average age of 59 or younger, versus 30 percent in 2005. While older directors and longer tenured directors certainly offer valuable insights and experience, boards may wish to consider the need to space out retirements, and also add some new and younger members to provide different perspectives, leading to continuing refreshment.

In any case, according to the Spencer Stuart report, 51 percent of respondents said their board intends to add at least one new director in the current year, 47 percent said they would recruit one or more directors in 2016 and 32 percent said they would add a director in 2017; of these respondents, 81 percent said that director retirements were a primary reason for adding board members, along with adding new skills (57 percent) and increasing board diversity (43 percent) as additional reasons for adding directors. Beyond gender diversity and diversity in skills and experience, 51 percent of the respondents said that finding minority directors is a priority.[6] According to the PwC study, nearly 40 percent of respondents said that someone on their board should be replaced, compared with only 31 percent of respondents in 2012.

Diversity is Valued By Some More Than Others on Boards

Given those demographics and sentiments, it is likely that refreshment of boards will continue, and diversity is a trend that appears to be gaining significant traction as a factor in selecting new board members. The reasons for this trend seems to go beyond political correctness. Thus, the PwC study reports that more than eight in 10 directors believe diversity at least “somewhat” enhances board effectiveness and company performance and more than one-third believes it does so “very much.”

There is still a range of views among public board members, however, as to the value of increasing diversity on boards. For example, the PwC study reported that “67% of mega-cap directors think diversity is ‘very important’ to board composition compared to only 31% of directors at micro-cap companies,” while “62% of directors with less than one year of board service ‘very much’ agree that having diversity on the board is important, compared to only 39% of directors who have tenure of greater than ten years.”

According to the PwC study, female directors think that both gender and racial diversity is more important than their male counterparts, and women are much more likely to believe strongly that board diversity leads to enhanced board and company performance.[7]

Gender Diversity is Growing

Two other recent surveys show the growing gender diversity of both U.S. public companies and British listed companies. Thus, the 2020 Women on Boards Gender Diversity Index[8] reports that of 842 companies that were on the Fortune 1000 index in 2011 and are still on the Fortune 1000 index today, women hold 18.8 percent of board seats, and women hold 17.9 percent of the board seats of the 2015 Fortune 1000 (out of 960 active companies), according to the 2020 study.

As a demonstration of the slow, incremental process of gender diversification of U.S. public company boards, women only increased their percentage of board seats by one percent from 16.9 percent in 2014. (The Spencer Stuart Report found that women represented 31 percent of new directors in 2015, compared to 30 percent in 2014 and only 21 percent in 2010.) Forty-five percent of the 2015 Fortune 1000 companies had 20 percent or greater women on their board, while only nine percent had no women on their boards (compared to 18 percent in 2011). According to the Spencer Stuart Report, only three percent of S&P 500 board had no women members, and 73 percent of S&P 500 companies have two or more women directors on their board.

Smaller companies and newer U.S.-listed companies are less gender diverse; for example, according to the 2020 study, of the 199 companies that joined 2015 Fortune 1000 since 2010, the percentage of board seats held by women was only 13.5 percent. Many companies go public without one woman on their board![9] Companies in the Fortune 501-1000 are adding women, but at a slower pace; among these companies, 648 women hold 17 percent of board seats, versus 20.1 percent of board seats held by 1,012 women in the Fortune 500.

Although one might expect that Silicon Valley companies would embrace gender diversity as a new trend (I certainly did!), women board members represent only 13 percent of the directors in the SV150, according to the Lonergan Report, while representing 22 percent of the total new SV150 board appointees in 2014-15. Only a handful of SV150 companies have three or more non-CEO women directors.[10]

The Lonergan Report found that 39 percent of women directors in the SV150 sit as the only director and 29 percent had no women directors, while the 2020 study found that 27 percent of the index companies[11] had only one woman director (compared to 33 percent of such companies in 2011), and, as noted above, only 9 percent had no women director. Thus, Silicon Valley appears to be lagging significantly behind the Fortune 1000 on gender diversity; undoubtedly some of this is due to the larger concentration of companies with relatively recent (2010 or later) initial public offerings in the SV150 compared to the Fortune 1000.[12]

Another recent report[13] announces progress in Britain toward greater gender diversity in boards. Women’s representation on the FTSE 100 has more than doubled to 26 percent in October 2015 from 12.5 percent in February 2011, and there is no longer a single all-male board left in the FTSE 100, compared to 21 of these boards in 2011. Like the Fortune 1000, more progress was made with the larger companies in Britain, but the FTSE 350 has had 550 new women appointed to boards in just over four years, and while there were 152 all-male boards in the FTSE 350 index in 2011, today there are only 15 companies with all-male boards (all in the FTSE 250). The FTSE 250 more than doubled the number of women on their boards, and there are 82 companies in the FTSE 250 with more than 25 percent of seats held by women.

The Davies Report recommended a new voluntary target for women’s representation on FTSE 350 boards of a minimum of 33 percent to be achieved within the next five years, a goal that has been endorsed by the U.K. government.[14] In thinking about the goals for the next five years, the Lord Davies' report comments that “strengthening women’s representation in executive layers is ... key to maintaining and growing the supply of talented women serving on FTSE Boards for the future.” Certainly this would be true in the U.S. as well as in Britain.

In comparing the board gender diversity initiatives between the U.S. and Britain, we see similar results, although Britain seems to have had somewhat more progress toward gender diversification. Thus, the 2020 study shows in the Fortune 100, 22.3 percent of the board seats were held by women in October 2015, compared to 26 percent in the FTSE 100, and 19.7 percent for the Fortune 500, versus 19.6 percent for the FTSE 250. The greater relative progress toward gender diversity for the larger-company FTSE boards may be due to Lord Davies and his steering group championing the agenda of increasing the number of women on FTSE boards as a voluntary business-led initiative starting in 2011.

In the U.S., the push for greater gender diversity on public company boards has been championed by a variety of organizations, including the 30 percent Club, Catalyst, InterOrganization Network (ION), the Thirty Percent Coalition, WomenCorporateDirectors (WCD) and 2020 Women on Boards, among others. It is worth noting that the progress in the U.S. and Britain toward gender diversity on boards is without the imposition of quotas; many countries in Europe and Asia have quotas on the number of women on boards of listed companies, which have not been the disaster that businesses feared, although they are still controversial and have worked better in some countries than others to address gender imbalance on boards.[15]

Is Gender Diversity Valuable for Boards?

What are the benefits of having women on boards? A recently released study by Grant Thornton reports that an analysis of the return-on-assets ratio for companies in each of the S&P 500, FTSE 350 and India-CNX 200 conducted in 2015 showed that, on average, companies with at least one female executive board member outperformed those with male-only boards.[16] Indeed, the report concludes, “S&P 500 companies with diverse boards outperformed rivals by 1.91%.”

Donna Hamlin, Ph.D., and CEO of Intrabond Capital US Inc. has observed: “Board effectiveness is now considered to be a combination of both effective and timely processes, plus a healthy balance of board member styles. The theory is that a diverse mix increases overall emotional IQ and intelligence of the board.”[17] Hamlin recently shared some observations on the differences between men’s and women’s brains that may explain how gender diversity contributes to critical thinking and quality solutions in the boardroom, in a presentation called "The Science of Why Gender Matters in the Boardroom" at the San Francisco 2020 Women on Boards event on Nov. 19, 2015,[18] based in part on the work of neuropsychiatrist Louann Brizendine, M.D., who has published two bestselling books, "The Female Brain" (Harmony 2007) and "The Male Brain" (Harmony 2010).

Linda A. Hill, the Wallace Brett Donham professor of business administration, Harvard Business School, noted in a video shown at the San Franciso 2020 Women on Boards event that diversity creates “creative abrasion,” which she defined as “a marketplace of ideas developed through debate and discourse.” Hill observed that companies “rarely get innovation without diversity and conflict,” and she noted that the issue in creating this marketplace of ideas is whether the environment is “supportive enough and safe enough for participants to speak up and take risks.”

This need to create an environment conducive to sharing controversial points of view is one likely reason that having more than one woman director leads to better outcomes — as the number of women on the board increase, there is safety in numbers to offer disparate ideas.[19] If the goal is to consider critical issues from multiple perspectives with a goal to creating better solutions, and in any case to avoid “group think,” it appears to be more helpful to have more qualified women directors on a board. As companies become increasingly global with diverse workforces, customers and supply chain, the value of diverse viewpoints becomes even more obvious. Indeed, the Lord Davies Report notes that “[o]verwhelmingly Chairmen report the positive impact of improved gender balance, the benefit of diverse perspectives, more challenging debates and improved decision making.”[20]

What is the Board of the Future?

James Quigley, a director of Wells Fargo, a company with women representing 44 percent of total board seats, was a panelist addressing "Why & How Do Winning Companies Recruit to Maximize Board Effectiveness" at the recent San Francisco 2020 Women on Boards event; he commented that the best strategy for a nominating and governance committee is to focus on building the “board of the future.” Of course, while the catchphrase, “board of the future,” has become a bit trite, there is no shortage of advice for nominating and governance committees thinking about how to go about this daunting task.[21]

Quigley’s main point was, however, that a nominating and governance committee should be seeking the very best board candidates to help the company achieve its strategy. As boards move away from recruiting only those candidates with CEO or chief financial experience,[22] and seek candidates who have deep background in key areas like cybersecurity, diversity on boards will likely increase. Rather than looking for a “good woman director” or a “good minority director” or a “good young director,” Quigley asserted that the diverse candidates will stand out as the very best, once the committee sets clear criteria for the talents, experience and skills to take the company to the next level. Panelists at this event also noted that the CEO will be the biggest driver in creating board diversity (whether gender, race and ethnicity, age, geography or experience), by setting the tone at the top that unequivocally values different perspectives and actively seeks diversity in thought and experience.

In any case there is no doubt that the “board of the future” for every U.S. public company will look very different from our boards of today, and that board refreshment policies, whether implemented by nominating and governance committees on their own initiative, or as a result of investor pressure, will result in an increase in diversity of gender, age, geography, experience and skills on U.S. public company boards. As a result, the trend of board refreshment is moving U.S. companies toward more effective boards better equipped to deal with the inevitable crises of the future.

[1] 2015 Annual Corporate Directors Survey (PwC Study).

[2] (Lonergan Study).

[3] See e.g.,

[4] According to the PwC study, 15 percent of directors felt that aging had led to diminished performance for one or more director, although this was down from 19 percent in 2012.

[5] Spencer/11_15_survey.pdf (Spencer Stuart Report).

[6] The Spencer Stuart Report notes that while the pool of new directors included more minorities (18 percent of S&P 500 new directors), the total percentage of minority directors held steady at 15 percent. Like women directors, see note 22, new minority directors are more likely to be line and functional leaders or division or subsidiary presidents (38 percent versus 23 percent).

[7] Speaking of performance, the PwC study also reported that “[f]emale directors are more critical of their peers’ performance than males;” 42 percent of female directors believed that someone on their board should be replaced, compared to 39 percent of male directors.

[8] 2015 Gender Diversity Index (2020 study).

[9] SV150 companies typically add their first woman director soon after their IPO, but it takes a while to add a second or third woman director. Thus, the Lonergan Report finds that 49 percent of companies with IPOs from 2010 to date had only one woman director, compared to 39 percent of companies with an IPO before 2010.

[10] Google, Cisco Systems, Symantec, Netflix, VeriFone Systems, Netgear andMedivation. Lonergan Study, at 34. On Nov. 1, 2015, Hewlett-Packard split into two public companies, Hewlett Packard Enterprise and HP Inc. According to company press releases, each will also have three or more women directors; before the split Hewlett-Packard also had more than three women board members.

[11] As noted above, 842 companies who were on the Fortune 1000 index in 2011 and are still on the Fortune 1000 index today.

[12] It is interesting to note that the Lonergan Report concludes that women are no more likely than men to sit on multiple boards — both men and women board members in the SV150 served on 1.1 boards per individual.

[13] “Improving the Gender Balance on British Boards,” Lord Davies report, issued in October 2015 (the Lord Davies Report).


[15] See, e.g.,;; finance/11341816/Proof-that-women-in-boardrooms-quotas-work.html. On Aug. 26, 2013, the California State Senate passed Senate Concurrent Resolution (SCR) 62, which calls for greater representation of women on corporate boards. Although this resolution does not mandate action, it encourages publicly traded corporations in California with fewer than five board seats to have at least one female director, those with five to eight board seats to have at least two female directors, and those with nine or more director seats to have at least three female directors. It also sets the goal that all publicly traded corporations in the state have at least one woman by 2016.

[16] “The Value of Diversity,” Francesca Lagerberg, Sept. 29, 2015,

[17] Diversity as a Business Strategy,

[18] A national event, the “National Conversation on Board Diversity,” attracted supporters of gender diversity on boards on the same evening in 17 cities across the country. I was a member of the host committee for this event in San Francisco. Here is a blog about the San Francisco event:

[19] The 2020 study refers to boards with one woman director as “token” boards; the study observed that over 55 percent of the companies in the current study of the Fortune 1000 were in the Token or Zero categories, and of the 29 newly inactive companies, seven were Zero companies (no women directors) and nine were Token (one woman director) companies. The study observes “[w]hile we cannot speak to causality, there is a clear correlation between fewer women directors and failure to maintain a presence on the Index.”

[20] There is an undeniable recruiting benefit to a diverse board, too. Thus, Kambiz Hooshmand, currently chairman at Infinera Corp., commented in the Lonergan Report that “Boards that don’t have any diversity can be unattractive to new board candidates. ... People want to join a board where there are constructive differences in perspective.”

[21] E.g., building_a_forward-looking_board; cfm?ItemNumber=12489;

[22] Some experts estimate that 85 percent of the board appointments for public company boards go to seated or former CEOs or CFOs. The Spencer Stuart report found that 65 percent of respondents were looking to recruit a working CEO or CEO. Some nominating and governance committees are reconsidering this criteria in light of the needs of the modern corporation to address global issues, cybersecurity, governance challenges and other complexities of the modern world. According to the Spencer Stuart report, new women independent directors are “more likely than their male counterparts to be line and functional leaders (25 percent versus 12 percent ).”

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