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THE MAGIC NUMBER

Company boards need at least three women before they truly begin to change

A woman wears a sweatshirt after swimming at sunrise on Copacabana Beach in Rio de Janeiro, August 8, 2012. On the final day of the London 2012 Olympics, the world looks ahead to Rio de Janeiro and Brazil who will host the 2016 Olympic Games. Picture taken August 8, 2012. REUTERS/Ricardo Moraes (BRAZIL - Tags: SPORT OLYMPICS SPORT)
Reuters/Ricardo Moraes
Women on the horizon?
  • Cassie Werber
By Cassie Werber

Reporter

Published This article is more than 2 years old.

Companies have heard the message that gender diversity will help both their image and their business. But while progress is being made, especially at board level, a new report points out that companies need to go beyond the token appointment of one or two women to their boards before any positive impact is felt.

In fact, the report by executive search firm Egon Zehnder cites a specific number of women needed to join a board before change is felt: Three. Research suggests that once three or more women join a board—which average nine to 13 members, and can be as big as 20—a critical mass is reached whereby women are both more likely to speak and be listened to. Companies with three women or more on their board in 2011 experienced a sizable boost in return on equity and earnings per share within five years, according to a 2016 study by MSCI, an indexing and analytics firm.

Egon Zehnder analyzed boardroom appointments from 1,610 public companies in 44 countries. In 13 of those countries, company boards had an average of three women or more on their boards. France was the leader, with women comprising 42% of board members at the country’s biggest companies. Saudi Arabia came in last, with just 1%.

If firms are serious about upping the gender diversity of their boards, they need to address structural problems with the pipeline, the report notes. Right now, a Catch-22 situation exists whereby board members are sought with previous board or CEO experience, while CEOs are often vetted according to whether they hold board positions. Since companies are also very bad at promoting women to CEO and other senior executive positions, that means there are few female candidates who fit the restrictive requirements that boards often look for.

Egon Zehnder’s report suggests that companies commit to a less rote way of making appointments to their boards. It suggests potential members should be identified who have not the perfect CV but rather four traits: curiosity, insight, determination, and engagement. It also recommends a re-examination of board tenures, noting “the old paradigm of board members having a seat for life is less and less relevant in an environment that requires a different style of leadership.”

Quotas, which several countries have implemented, also make a difference, but one that may not last. Overall, the report says, companies simply need to find ways to promote more women through the ranks, into both top management and onto boards. According to one UK chairman quoted in the report, women “enhance the ability of the board to see around corners and scan the horizon.”

A horizon where all the top management and non-executive roles achieve gender parity? In most countries, that is hard to see happening any time soon.

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