Women on Executive Boards: 2016 Setback Belies Broader Trend

Executive board diversity continues to elude many Fortune 500 companies, as reflected by figures on women appointees in 2016, but there will likely be more progress ahead, consultants told Bloomberg BNA. 

Getting more women on executive boards has been "a perennial challenge" despite evidence that their inclusion can often lead to better business performance, Terri Hartwell Easter, principal of T.H. Easter Consulting and a former practicing attorney, told Bloomberg BNA. 

The percentage of women among newly appointed directors in 2016 decreased for the first time in seven years, according to a study by executive search firm Heidrick & Struggles. In 2016, women accounted for 27.8 percent of new director appointments at Fortune 500 companies, a 2 percentage point decline from the previous year, the firm found. 

One contributing factor may be that the majority of director appointments were chief executive officers and chief financial officers, which "are not a particularly diverse group," Jeff Sanders, vice chairman and co-managing partner of the global board and CEO practice at Heidrick & Struggles, told Bloomberg BNA. Sanders said he was "surprised at the dip" the data revealed, because companies have made board diversity a priority in recent years. 

A lack of diversity among top executives means that the pool of candidates for board appointments also lacks diversity, according to Hartwell Easter. "If we don’t fill those C-level seats with a diverse slate within the organizations, then that means we have a smaller pool of people to be potential candidates for other outside boards," she said. 

To combat the status quo, companies should have a more performance-based approach with potential candidates for C-level and CEO roles, Hartwell Easter said. The assessment should look at an individual’s skills and experience, understanding what they are "naturally wired to do," and then look at measurable performance data, she said. 

Simulations Can Test Candidates

One innovative technique gaining popularity is technology-enabled simulations, Hartwell Easter said. For example, an employer can put the candidate in a virtual lab to perform certain activities that would be part of "a day in the life" of a CEO, she said. The performance in the virtual lab is then assessed by a third party, she said. 

The involvement of the third-party assessment is important because it is looking at the data on the prospective executive’s skills without bias, Hartwell Easter noted. "We tend to define competencies based on our investment in the person," which can lead to bias in hiring, she said. 

Sanders said HR should make sure that diversity is a priority at every level of an organization. "We are finding more and more that boards themselves are leading through the selection process," Sanders said, "but we also see HR heads working closely with those boards, and they can be helpful in advocating for diversity." 

The 2016 decrease in women on executive boards is likely not an indicator of what to expect down the road, Sanders said. "We are going to continue to see more and more boards focus on diversity," and one signal of this might be the gains in women on executive boards in the technology sector, he said. 

The study found that female directors made "substantial gains" in the tech sector, with women accounting for 40 percent of the board seats filled in the industry, an increase of approximately 13.5 percentage points compared with Heidrick & Struggles’ data from 2015. 

"There’s greater organizational agility in tech companies," enabling them to change course more easily than some other industry giants, Hartwell Easter said. Additionally, the technology industry has "really been trying to hold itself accountable" to pursuing diversity, she said. 

Overall, "diversity and inclusion changes when behavior changes," Hartwell Easter said. Organizations won’t make strides in boosting the presence of women and minorities in the C-suite until there is a value and expectation placed on diversity. "This needs to happen at the very top and can’t be outsourced," she said.

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