Women on Boards: Avoiding Tokenism

SMITH BRAIN TRUST – Could activism inspired by International Women's Day, such as State Street Global Advisors' placing a statue of a young girl before the iconic charging bull of Wall Street, actually hamper the push to gain more women on U.S. corporate boards?

SSGA this week did more than just position an inspiring statue on Wall Street. It called on 3,500 portfolio companies to increase the number of women on their corporate boards. The move comes as U.S. firms' cross-border shareholders have been advocating for female directors. These investors originate, in part, from Europe, where Germany, for example, requires large companies to fill 40 percent of its board seats with women.

Rajshree Agarwal, Lamone Chair and Professor in Strategy and Entrepreneurship and Director of the Ed Snider Center for Enterprise and Markets at the University of Maryland's Robert H. Smith School of Business, says she supports the goal of having gender equity on corporate boards, but adds that getting there may require some care. 

Agarwal was part of a "Gender Diversity on Corporate Boards: How Do We Get There?" panel discussion hosted by the Smith School's Center for Financial Policy, Ed Snider Center for Enterprise and Markets, and Office of Diversity Initiatives. "Trends overall are going in the right direction," she said. Citing a national index tracking companies on the Fortune 1000 list, she noted that women now hold 20 percent of board seats, compared to 14.6 percent in 2011.  

But with the progress, there' a need to think about how gender diversity translates into good business strategies.  "Regulating or 'shaming' companies to increase gender equity may be counter-productive," Agarwal said, drawing an analogy to the progressive-policy backlash recently observed in national politics.

“What we really care about is cognitive and viewpoint diversity, of which gender diversity is a correlate," she said. "Adding female directors because one 'has to' rather than 'wants to' may create a negative environment where diverse views are either not voiced, or heard."

Panelist Karishma Shah Page, a partner with international law firm KL Gates, said strategy, more than shaming, is encouraging U.S. companies to diversify, adding, "Starbucks is a great example." Its 13-member board has four female directors, and recently introduced board nominee Rosalind Brewer as a fifth. The company lauded her for bringing "extensive insight on large-scale operations and supply chain logistics…”

Starbucks exemplifies how board effectiveness and protecting the interests of shareholders is a fundamental driven by innovation, creativity and a true 360-degree perspective – and diversity happens to fuel the latter, said Smith adjunct professor Andrew J. Sherman, a partner with Seyfarth Shaw, who teaches corporate governance and business planning to MBAs. This is driving institutional investors to advocate for gender diversity awareness, "because underrepresentation, now, means missed opportunity." he said. "Name a company that doesn't want to grow – to have a greater understanding of its target audience."

The corporate board model prone to projecting tokenism is a model that is dying, Sherman said. "But it's not dead yet. So, we [in academic settings] need to keep attacking the model. Institutional investors are attacking that model. Customers are attacking that model… We're making headway."