Non-executive positions offer launching pad for gender parity on boards
The following contribution is authored by Kate Hodge, former commissioning editor, and special reports for the prestigious Financial Times
The position allows women to hone their leadership skills amid a lack of senior management opportunities
Ready made: non-executive directors gain many valuable skills
At first, the idea was simply that more women would be appointed to company boards. Campaigners for greater female participation argued that the result would be an improvement in both business leadership and women’s own careers.
Great progress has been made
The proportion of women on the boards of FTSE 350 companies hit an all-time high last year, at just over 42 per cent, according to this year’s FTSE Women Leaders Review, which tracks female representation on the boards of the UK’s leading listed and private companies. In 20 major economies, data from intelligence provider Altrata suggests that women make up 32 per cent of board members at large listed companies.
But an interesting detail has emerged in this trend: a higher proportion of women on boards are non-executive directors, rather than CEOs.
Broadly speaking, non-executive directors are independent, not involved in day-to-day operations, and provide oversight, expertise and outside perspectives to management.
In contrast, CEOs are both on the board and the executive, working on the day-to-day concerns of the company.
In 20 major economies, women hold 12.2 per cent of CEO positions
Compared to 36 per cent of non-executive director positions, according to Altrata’s latest report, Global Gender Diversity 2024.
Why is this important? First, it points to an imbalance in influence: CEOs have more say in the day-to-day running of a company.
Second, bringing in female non-executive directors to achieve boardroom diversity is relatively easy.
It is much harder to develop candidates from junior levels upwards, to ensure a supply of women for senior operational roles.
The result has been that more women are adding a non-executive role at another company, rather than waiting for an executive board seat as part of their day job.
However, Vivienne Artz, chief executive of the government-backed FTSE Women Leaders Review, argues that “although there are many women who may be moving from the executive into the board [role], we still need this executive pipeline. “It is very, very important to feed into the board. And those CEO roles are the ones that have an impact.”
The FTSE Women Leaders Review 2024 report found that
In the UK, the proportion of female non-executive directors has grown at a faster rate than that of female CEOs. For example, in the FTSE 250 in 2011, around 10 per cent of non-executive directors were women, a figure that rose to 49 per cent by 2023. But the proportion of female CEOs over the same period rose from just 4.2 per cent in 2011 to 11.9 per cent.
They are not in the positions that have influence
One drawback is that the low representation of women in CEO roles means that they are absent from roles that influence day-to-day business affairs.
Chief executives are the most influential, making day-to-day decisions and driving culture and people, says Penny James, co-chair of the FTSE Women Leaders Review and former chief executive of insurer Direct Line Group.
Still, women looking to advance should not underestimate the power that non-executive directors have in driving strategy and oversight. James, for her part, also argues that the role is essential to “creating a balanced set of experiences” that feed strategy, performance, culture and talent.
Also, “where the board can step in is by asking the tough questions,” says Jennifer Reynolds, chief executive of Women Corporate Directors, a US-based global network.
The role includes getting answers about the state of the executive pipeline and pushing for talent development, she adds.
There is some debate, however, about whether a top-down approach to diversity has a practical effect.
Reynolds is certain it does, and says she makes sure to ask questions about senior management development.
Susanne Thorning-Lund, a partner at executive search firm Odgers Berndtson, says there is “more emphasis” from UK non-executive directors on lobbying senior managers on gender diversity: “So it’s really filtering down to the bottom,” she suggests.
Others, however, are less convinced
“Many UK boards lack sufficient leadership and cultural development expertise,” says Fiona Hathorn, chief executive of WB Directors, a network that promotes board diversity.
“Simply adding more women to the board will not deliver the deep, transformative changes needed to strengthen leadership at middle management level.”
However, such changes are crucial to addressing the barriers women face in senior leadership roles.
Simply adding more women to boards will not bring about the deep, transformative changes needed to strengthen leadership at the middle management level
By and large, in public companies in the UK and US, it is either the chief executives or the chief financial officers who hold a CEO role.
And, to make a difference to the gender balance of these roles, companies need to improve diversity among senior and junior managers.
Progress towards getting more women into the CEO role, in particular, is slow. “The trajectory of the CEO statistics [is] glacial – they are not changing, there are not enough women,” says Reynolds. And according to the Altrata report, only 6.5 per cent of CEOs at large public companies are women.
Part of the problem, says James, is that traditionally CEOs come from the ranks of CFOs
those who have run part of the company or have held results roles. Organisations should consider whether women are getting those business roles, rather than those in human resources or marketing, which are often seen as “more feminine” roles.
But again, this is where the role of non-executive director should not be underestimated. In fact, it can be good preparation for women to hone their skills for a CEO role.
In Thorning-Lund’s view, serving as a non-executive director is like “real business school”.
James believes the role helps women gain skills that are valuable to anyone aspiring to become a CEO.
After all, they understand how a board works and even how to work with non-executive directors, she notes.
In fact, some argue that having those kinds of skills will be more important than just accumulated experience when companies face disruption and volatility.
Artz argues that appointments to senior management and board positions will increasingly focus on skills
“Experience is important, but much of it is no longer relevant because the pace of change means we have left much of it behind.”
Achieving Gender Parity on Boards
The following contribution is from the World Bank Blogs portal and is authored by Sibel Kulaksiz, a Senior Economist for the South Asia Region of the World Bank Group, based in Washington, D.C. She also served as Country Economist for the Middle East and Africa regions, responsible for macroeconomic policy management, with a focus on economic growth, fiscal policy and management, and regional economic integration issues.
Talal Rafi is an economist and currently a consultant at the Asian Development Bank on economic policy. He is a member of the World Economic Forum Expert Network and a regular columnist for the International Monetary Fund on public financial management. He is co-chair of the World Economic Forum Global Plastics Innovation Network Task Force and was a member of Deloitte’s ESG Global Operations team.
Increasing the number of women on boards can help improve a company’s value and performance, but women remain underrepresented on boards.
The boards of the largest companies have enormous influence and hold more financial power than governments in many developing countries.
The world’s 500 largest corporations account for nearly a third of global GDP. Yet less than 6.7 percent of global board chairs were women in 2021 and only a quarter of Fortune 500 board members were women.
A lack of female representation and leadership in top private sector decision-making bodies is detrimental to efforts to reduce gender inequality and close the gender pay gap.
The World Bank says that due to gender inequality in lifetime earnings, the world is losing $160 trillion in wealth
That’s almost twice the global GDP. But there are clear steps that governments and the private sector can take to achieve gender parity on boards, which can help increase company value and performance.
Gender disparity on boards
While these gender disparities exist on boards around the world, they can also vary depending on where the company is based.
For example, Europe has the highest representation of women on boards, at 35%, while the Middle East has one of the lowest rates, with just 10% of seats held by women, according to Deloitte. Globally, publicly traded companies have a better representation of women on boards (19.7%) compared to private companies backed by US venture firms (7%).
Challenges for women
One of the most common routes to boardrooms is through senior management, but women’s representation at the executive level is very low.
In the Middle East, for example, only 1.6% of CEOs are women, while in Asia it is 4.1% and in Africa it is 7%.
Boardroom seats are often filled through networking that occurs at the highest levels of the business sector, which is dominated by men and in some cases underpinned by religious or social norms.
These biases overlook well-qualified women for executive and boardroom positions and reinforce the status quo at the expense of better outcomes and decision-making.
In addition, women tend to do at least two and a half times more unpaid care and domestic work than men, leaving them less time to network.
Correcting discriminatory norms or favoritism of social groups is the first step to moving forward
Why is gender parity on boards necessary?
Studies show that an increase in the presence of women on boards improves a company’s value and performance. During the Covid-19 pandemic, companies that had more women on their boards outperformed their peers in financial terms.
Increased diversity also leads to greater innovation and smarter decision-making, according to Deloitte.
There is a growing demand for inclusion among investors, with around 90 percent of executives saying gender balance is important. Finally, having more women in the boardroom can help encourage younger women to seek leadership roles.
What will it take to close the gender gap in the boardroom?
Gender Equality at the C-Suite Level
Many companies have achieved gender balance by looking at their entire workforce, but studies show that the percentage of women declines as seniority increases.
Only 21 percent of C-suite executives and 38 percent of managers are women. A McKinsey report shows that the lack of women in senior management is due to gender disparities in promotion rates rather than hiring.
Gender disparities in who gets promoted need to be assessed to understand the factors contributing to low promotion rates and addressed through targeted interventions to create gender balance at the management level.
Investor Pressure
Investors realize that gender equality on boards is not only the right thing to do, but will also increase profits.
For example, Blackrock, the world’s largest asset manager, has diversity targets for boards in the United States and Goldman Sachs refuses to work with all-male boards.
Executive training
With the number of women on corporate boards increasing, many of them are first-timers. They should be given the opportunity to train at the best executive schools and programs aimed at leaders and decision-makers.
Merit-based versus networking-based assignments
All corporate board assignments should be made on the basis of merit, taking into account the candidates’ track record and achievements.
This approach helps reduce the bias in board member appointments that have been made in the past based on high-level networking.
Governments and the private sector could play a greater role in achieving gender parity
Governments should focus on policies aimed at creating a more favorable work environment for women leaders. Countries with quotas and regulations have achieved better gender parity on boards.
Policies are also needed to eliminate gender bias at an early age in schools and increase access to STEM education.
Governments could offer incentives to private sector companies to encourage them to hire more women leaders at decision-making levels.
The private sector would benefit from offering leadership training programs for talented female staff and eliminating unfair competition in the workplace.
The World Bank Group has been working with its counterparts to address gender disparities
on boards through its private sector arm, the International Finance Corporation (IFC). For example, an IFC programme in Sri Lanka provides a platform for women in management positions in the country to share their industry experience to help propel qualified and aspiring women into board directorships.
The IFC toolkit for “Women in Boards and Corporate Leadership” focuses on the soft skills required for board directors.
This is expected to complement the Sri Lanka Institute of Directors’ Board Leadership Director Certification Programme, which will help build partnerships for aspiring women leaders.
In Nepal, the IFC is working with the Stock Exchange to encourage gender diversity on corporate boards and in senior management.
Gender diversity on corporate boards
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What to expect from the new EU Directive on women on boards, including practical changes to your governance structure and the impact on national legislation in each Member State.
Women remain significantly under-represented on company boards in all EU Member States and the UK.
In recent years, more and more European countries have introduced legal gender quotas to balance gender equality on company boards.
