Burgess COMMENTARY
Peter Burgess YOU I argue that in the modern world, corporate decisions (including banking and finance) are bigger and more important than decisions made by government. Government policy making and legislation has the characteristics of pushing on a piece of string while corporate decisions are pulling on the string. In this article there is an image about causality. Policy making is usually based on historic correlation. The corporate world uses causality all the time and then checks results with correlation. And the corporate world uses metrics that are very meaningful about what they are trying to do ... in the main to grow and earn more profit. I argue that we all should be using much more meaningful metrics so that we not only achieve increase in financial capital, but also improve all the other capitals ... physical capital, human capital, social capital, institutional capital, intellectual capital and natural capital. The singular focus on financial capital is a surefire way of achieving and social and economic train wreck. Peter Burgess, TrueValueMetrics ... Multi Dimension Impact Accounting
Peter Burgess

Third Good Reason: Better Governance

Getting more women to the top of business leadership is an objective that should be as important to all of us as putting more females into political office. Corporations decide many things about our daily lives, from what we eat to where we work to what we wear to how much we are paid. I am always dismayed to hear someone who is otherwise strongly in favor of women’s empowerment dismiss the issue of women on corporate boards as an “elite” concern. That is a knee-jerk reaction (I always suspect the speaker is just posturing as a proper populist) when in fact having more diverse leadership in these posts would positively affect everybody, not just the rich.

Multiple studies, using large samples and various methods, have demonstrated that greater gender diversity among corporate boards would have a positive impact on the governance, transparency, and accountability of the private sector, as well as improving its overall performance and reducing risk. Yet, throughout the world, women are represented in tiny numbers at the board level.

Given the widespread belief that the crash of 2008 was caused by homogeneous insiders who failed to question dubious decision-making, the promise of improving corporate accountability and performance by introducing more women is attractive to governments. Such a reform is much less costly, cumbersome, and time-consuming–and probably more effective– than introducing and implementing a whole raft of regulation. Where quotashave been seriously proposed, the idea has been popular among citizens.

Not surprisingly, various groups have emerged to fight the suggestion of quotas. Such organizations usually blow out a smokescreen of assertions that they support gender diversity–they merely question the method by which it might be accomplished. They argue that unqualified women should not be imposed on private business, implying that such a rash act would negatively affect performance. The specter of tokenism is raised: women should be asked to be on boards because they are qualified, not because they are women. The implicit next step is for businesses to have more time to act voluntarily–once there are enough qualified women around, it should be easy to increase the numbers.

This direction of argument is completely disingenuous. First, the stance implies that, under current practice, corporate board members are chosen in an open, fair contest in which the most qualified candidate is found. Nothing could be further from the truth. Corporate board selection is often done secretly and there has been a noticeable tendency to cronyism. To suggest that introducing diversity into an already inappropriately incestuous group would be “tokenism” is sheer sophistry. Perpetuating the traditional process just guarantees that the same close buddies will keep making bad decisions for everybody else.

But are there qualified women around? Well, that depends on what you think the qualifications should be. Many of the big business schools have already produced lists of their own female graduates whom they deem to be “board-ready.” But the big obstacle is the claim that only those with board or CEO experience are qualified to be on boards. Those who put forward that argument hope listeners will not notice how unequal women’s chances are for getting into those positions–once again, they want you to think it is a race based on merit when it is not.

In 2010, the World Economic Forum did a study on the Corporate Gender Gap, which surveyed the top HR person at 100 of the biggest employers in 30 OECD and BRIC nations. The pattern of advancement that they found was more or less the same in every nation surveyed: women are hired into management jobs in smaller numbers than men, even where they are the majority of employees overall (and even in countries where women are better educated than men), then they become a smaller and smaller group at each step higher in the corporate structure. In the graph here, you can see that India has lower number of women overall in management positions (India only has 30% female labor force participation), but the stairstep pattern is the same as the global average. The pattern is the same for the Scandinavian countries, with one exception, Norway.

Norway enacted a quota requiring 40% women on corporate boards–and, what do you know, they seem to be finding the women to fill the places! And, the need to have women on boards also appears to be helping women through the pipeline.

Over the long run, ensuring that there would be enough women to fill 30%+ of board seats (30% is a generally accepted threshold to be crossed before the people on the board settle into diversity and begin behaving in a civilized and accountable manner) would indeed require that countries do a better job of keeping women in the workplace, pulling them up through the ranks in numbers comparable to males.

When we look at the possible reasons for this “leaky pipeline” phenomenon, we might speculate that workplace hostility to children is a major problem, as the fertility decline discussed in the Second Good Reason post would suggest. However, the attrition really begins well after the early child-rearing years, so there are probably other reasons. In this same survey, most of the respondents (mostly men and all top employers) gave patriarchal corporate culture the top spot on the list of reasons why women can’t advance within their company.

Of the companies surveyed, very few were doing anything positive to promote gender diversity within their organization. Oddly, they seemed to think they did not need to track salary discrepancies. I say “oddly” because there is a WEF question, asked every year for the Global Gender Gap Report, in which corporate managers consistently report that they pay women much less for the same or similar work.

Indeed, there is good reason to think that women really leave these companies because they simply get discouraged by the unequal treatment and the absence of real chances for advancement. That feeling may not get any better as you rise in the hierarchy. OECD’s Closing the Gender Gap Report shows that pay inequality for women actually increases at the top (for more, seehere). Ironically, many women at the top level are quite convinced there is no such thing as sex discrimination–yet they are likely the biggest victims.

I’m sorry to say there is little reason to think those same top-level women will do anything to help those lower in the ranks–research shows they tend to be fearful that the men will think they have a “woman agenda” if they promote other females (but nobody raises that with the men when they doggedly keep promoting their own). Nevertheless, the very fact of seeing another woman at the top has been shown to give hope and confidence to all those below her–and so the presence of a woman on the board or other top spot tends to correlate with better diversity right across the organization, as well as equal pay and other indicators of fairness. Hard to say what the causality is there: women at the top producing an equal, diverse workplace or, more likely, an equal and diverse workforce giving rise to more women at the top.

Let’s remember that many governments are wringing their hands over

(1) dropping fertility,

(2) crowds of poor old ladies to support in the future, and

(3) an economy that went haywire because a few rich men had it by the throat

then you can see why they might be interested in patching that leaky pipeline. And when you also remember that equality legislation in most countries has been around for a while–nearly 50 years in the US and UK–there doesn’t seem much point in waiting for business to decide to clean up their act voluntarily.

In sum, there are very good economic reasons to start working in earnest on closing the gender gap. We can reduce poverty and hostility. We can maintain growth. We can have better governance, more accountability, improved performance, and less risk in the private sector. All these things are good for everybody. We do, actually, have good reasons to believe that the direction of causality is from gender equality to prosperity and peace.

These reasons are known by people working in some of the largest and most authoritative institutions in the world, which is why you see the World Bank, the International Monetary Fund, and OECD, as well as ExxonMobil, Goldman Sachs, and other corporates pushing this agenda. What I have written in these three posts is not particularly controversial. But there is a long way to go to make the world accountable for progress. We have sat by for 50 years waiting for corporations to open up equal employment paths for women, for example, and we still have a drastically lop-sided workplace. In developing countries, there are still basic rights to be won or enforced (the right to have your own bank account or own property, for instance) and local resistance to rights for women can be intense.

So, this is why it is important to get behind the movement to ensure women’s economic empowerment is on the next round of the United Nations’ economic development goals. The list of items that is finally ratified by the UN will have resources and attention–and every nation will have to report their progress against the goals. If you want to help, click here for more information or just sign here.

The other “Three Good Reasons” posts are here.