A Kellogg finance professor explains why companies are adding more women to their leader boards

STOCK of people at a boardroom desk
American companies only recently tripled the rate at which they added female directors to prominent boards.

  • Professor David Matsa believes “the Big Three” investment companies influenced the recent uptick in female directorships.
  • “The more of a firm’s stock the Big Three held, the more women directors appeared on that firm’s board.”
  • The Big Three’s campaign to get more women on boards shows there are qualified women ready to serve.
  • See more stories on Insider’s business page.

The dearth of female leaders in corporate America is well established. For example, at the end of 2020, fewer than 8% of companies in the S&P 500 were woman-led.

One way to address this gender imbalance would be to increase female representation on corporate boards. Not only are board members corporate leaders in their own right, but they also hire CEOs.

While countries such as Norway have used government mandates to force companies to include women on their boards, few such rules are on the books in the US. Nonetheless, American companies recently tripled the rate at which they added female directors.

Were US firms unusually enlightened? Or were they responding to pressure from another source?

Kellogg finance professor David Matsa suspected the latter. In recent research, he and coauthors noticed that the conspicuous uptick in female directorships coincided with a cascade of gender-diversity influence campaigns mounted by a trio of powerful institutional investors: Vanguard, BlackRock, and State Street. Known as “the Big Three,” these firms manage over $15 trillion, accounting for three-quarters of indexed mutual fund assets. That means that these companies hold shares in almost every large firm in the US – in fact, they’re the dominant shareholder in 88% of firms on the S&P 500.

Given this outsized influence, Matsa and his collaborators – Todd Gormley of Washington University in St. Louis, and Vishal Gupta, Sandra Mortal, and Lukai Yang of the University of Alabama – wanted to know if the Big Three really were moving the needle on boardroom-diversity efforts. And if they were, how did those efforts compare to government-enforced quotas in other countries?

The researchers found evidence that the Big Three were indeed driving boardroom gender diversity – and that these efforts led to women in more powerful board positions than those spurred by government quotas. Furthermore, by analyzing how firms responded to the Big Three’s demands, the researchers shed light on why companies may be slow to appoint female board members in the first place.

“The Big Three changed the conversation around gender in corporate boardrooms,” Matsa said. “When your largest shareholders create a ruckus, you listen. And in important ways, their advocacy can be more effective than legislative mandates.”

The Big Three’s campaign

State Street led the Big Three’s charge for gender diversity with its March 2017 “Fearless Girl” campaign, named for an eponymous statue the company placed in front of the “Charging Bull” sculpture on Wall Street. By early 2018, Vanguard and BlackRock had launched similar campaigns.

Each member of the Big Three also backed up its campaign with a threat: it would vote against directors at any firms who failed to appoint more women to their boards. Directors on a corporate board are elected by the firm’s shareholders. And since Big Three investors tend to be a firm’s dominant shareholders, their voting threats are not idle.

“Being a director is a highly sought-after job: it’s prestigious and well-compensated. Directors don’t want to lose it,” Matsa explained. “Even though these elections typically aren’t contested, it doesn’t look good to have a lot of votes against you.”

To determine whether companies were responding to the Big Three’s diversity demands in 2017 and 2018, the researchers gathered two types of information about companies in the investors’ portfolios. First, they measured how much of a stake each Big Three investor held in each of the firms, with the idea being that the bigger the stake, the bigger their campaign’s influence would likely be.

Second, the researchers gathered information about the composition of each firm’s board of directors – whether members were male or female, when they’d been hired, whether they’d previously served as board members at this or other firms, and which board committees they served on.

They then analyzed the data across two spans of time: Three years before the Big Three’s gender-diversity campaigns (2014-16) and three years after (2017-2019). Together, this provided a before-and-after picture of how firms under the Big Three’s influence behaved.

“The firms with a larger share of their stock held by State Street, BlackRock, and Vanguard – to what extent did they change their boards of directors relative to other firms during this period?” Matsa said. “That’s the variation that we studied.”

More stake, more women – with more power

The results were undeniable: the more of a firm’s stock the Big Three held, the more women directors appeared on that firm’s board after 2017.

Indeed, for every additional 8% owned by Vanguard, BlackRock, or State Street, the number of new female board members rose by 76%. Before 2017, only one in twelve firms added a woman to its board each year. By 2019, one in four did.

The Big Three’s campaigns each had a slightly different focus. For example, State Street targeted firms without any female directors. BlackRock, meanwhile, said it expected at least two women directors on every board. So the researchers were able to track whether firms responded differently depending on the relative ownership stake of each of the Big Three institutions.

Sure enough, the researchers found that companies with larger State Street ownership exhibited the largest increases in diversity among those firms with all-male boards. Similarly, firms held more by BlackRock – and with fewer than two female directors prior to 2018 – made larger board-diversity changes compared with firms where Blackrock was less invested.

“The way a company changed their board corresponds to who holds large ownership stakes in them, and what those specific asset managers were pushing for,” Matsa said. “This finding gives us more confidence that these changes in the board-member composition are indeed a reaction to the pressure from these institutions.”

But to Matsa, the most interesting finding was the quality of the Big Three’s effect on board diversity.

He explains that previous research has shown that government quota systems – like California’s 2019 requirement that every public company have at least one woman on its board – can result in tokenism as boards “check the box” of adding female directors. But, the previous research shows, the companies often fail to put these women on committees where power is actually exercised.

“A lot of a board’s work is done in these committees,” Matsa explained. “For example, the audit committee oversees the company’s financial reporting and disclosure.”

The companies that responded to the Big Three’s diversity demands, however, did appoint more women to influential audit- and nominating-committee positions than firms complying with a mandatory quota did. This implies that institutional investors may be more effective than lawmakers at creating what Matsa calls a “ripple effect” in female corporate leadership.

“When women are involved in the nominating committee, it might begin a cycle of the boards being more open to female membership in the future, even when they aren’t subject to the shareholder campaign,” Matsa said.

Why aren’t boards hiring women already?

For Matsa, these results beg a larger question: Why aren’t companies doing this on their own? “This paper is also about understanding what impediments keep firms from appointing more women, outside of these influence campaigns,” he said.

The most commonly cited reason for failing to recruit qualified female board members, Matsa said, is that there simply aren’t enough of them. But that reasoning depends on certain biases.

For one, board nominating committees often use previous CEO experience as a proxy for “qualified” – even though, in practice, boards often include other senior business leaders and nonexecutive experts like lawyers, bankers, scientists, or academics. Since most CEOs are still men, this bias curtails the number of female board candidates. Moreover, nominating committees often rely on personal connections to filter potential candidates – so when those committees are male-dominated, their networks tend to be, too.

To satisfy the Big Three’s diversity demands, Matsa found that firms simply did the obvious: they didn’t prioritize previous CEO experience, and they ventured beyond their personal networks.

But did this result in a flood of unqualified female board members? Hardly. The Big Three believed that there were plenty of qualified women out there ready to serve on boards if only existing board members broadened their searches. And, indeed, the women who were nominated were “overwhelmingly” voted for by shareholders, Matsa said – and not just by the Big Three, who may have had a motive to see their diversity campaigns succeed.

“That fact is not consistent with there being widespread opposition to adding these women,” he explained. In other words, it’s often the old boys’ network – not a lack of real qualification – that’s keeping women out of boardrooms.

To Matsa, these findings are less about assigning blame than about illuminating what works.

“My sense is that few board members believe that they were selecting a man because he was a man,” Matsa said. “They would think of it as looking for someone experienced, who they can trust. It’s difficult to move outside of that frame. It takes someone influential, like your largest shareholder, to tell you that you should approach this differently.”

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5 big problems I see with women’s conferences, and how we can fix them to actually fight gender inequality

Erin Hatzikostas Headshot
Erin Hatzikostas.

  • Erin Hatzikostas is a former corporate CEO turned career coach, speaker, and podcast host.
  • She says women’s business conferences are a “noble idea” – but gender diversity still persists.
  • Instead, give women the tools to change up jobs and make conferences more creative.
  • See more stories on Insider’s business page.

In comes a new email from your boss. The subject reads, “You are invited … “

Your stomach flutters with anticipation. What could this possibly be about?

You open it up to learn … your boss is sending you to a “women’s conference.”

Every year, hundreds of women-focused business conferences are held across the globe. This is great, right? At first blush, it certainly feels great to be selected for one.

Wow! They must think a lot of me to choose me to participate!

Awesome! Who will I be able to mix and mingle with?

(Secretly) What will I wear? I need to stand out.

But pretty soon reality sets in.

Hang on. I’m already slammed. This is going to throw another monkey-wrench in my schedule.

Wait, why is Janice invited? She leaves every day at 4:00.

So, what are all the men doing that day?

What exactly are the chances that I’ll be volunteered to help organize this thing?

Women’s business conferences are a noble idea. If you’ve been to one, it’s hard not to be in awe of the passion, sophistication, and attention to detail demonstrated by the organizers and attendees.

But if there are so many amazing women’s conferences, why is gender diversity still such a massive issue in the corporate workplace?

Obviously, this is a complicated question. Improving women’s conferences isn’t a silver bullet, but considering how they miss the mark can shed some light on the problem as a whole.

My podcast cohost and I recently drew up a list of all the things we’ve generally disliked about the over 25 women’s conferences we’ve collectively attended. Here they are:

1. They are too politically correct and vanilla. There simply isn’t enough plain speak and authentic, hard-earned perspective.

Suggesting that women’s conferences should be less politically correct immediately brings to mind a HuffPost article that shared an insider look at a particularly egregious (and politically incorrect) conference held by Ernst & Young.

When I read this article, I gasped. And then laughed. The gist of it was a completely ludicrous education about how to rise in your career by working within the gender stereotypes of the 1960s: Eschew anything masculine (but don’t flaunt your body), approach men deferentially, avoid being assertive, and above all, avoid being authentic.

This is not the kind of political incorrectness we need.

Instead, what we need is less jargon and more real talk. We also need to laugh more; we face a lot of ridiculous things in the average work day, and sometimes simply laughing together about it helps us get through it all.

Cut the crap. No more phrases that have been done to death such as “lean in,” “executive presence,” “speak up,” etc. These are all solid ideas, mind you, but they’ve become meaningless with overuse. For example, the term “executive presence” infers that women have to change who they are to succeed. The result? Many of the most qualified women decide to opt out of the bigger roles. Women need authentic examples, preferably interesting ones, not buzzwords.

2. There are too many professional facilitators and consultants and too few women who have actually been in the trenches

Consultants have their place, and conferences definitely need facilitators to start – and keep – the balls rolling. But relying on academic advice from people who have never personally navigated the landmines of rising through the corporate ranks leaves a lot of expertise on the table.

Conferences need to do more than pay lip service to the idea that women can be leaders by allowing them to actually lead. Encourage them to share their experiences, their ideas, and their solutions. Another common issue with these conferences: Focusing on problems women are assumed to face without enough timely, tactical, or tangible advice on how to solve them.

If we want women to be leaders, we must make sure that the conferences aimed at that goal are interactive and offer opportunities to put those skills to use.

3. Organizing conferences is often a time suck for the very people they are supposed to be supporting

Too often, organizing a women’s conference falls to a woman who is already working her butt off in a leadership position. And although helping each other rise is a noble and worthy goal, the women leading the charge are generally forced to shoehorn the planning into an already tight schedule filled with all the other responsibilities of the job. One wonders: How many male executives spend hours on end organizing events for other men?

According to McKinsey’s “Women in the Workplace” study, companies’ commitment to gender diversity has gone up 13% since 2015. However, only half of employees think that gender diversity is a priority in their company. Could this be because it is left to women alone to lead the charge?

4. The conferences are too darn formal

Generally, a women’s business conference looks and feels like a conference designed for a very uptight, stuffy, unapproachable man. Everything – from the agenda to the seating – screams button up and mind your manners.

Is this really an environment that fosters the authenticity and vulnerability required to bring your best self to bear? We think not. Why not customize the experience to the attendees? What’s wrong with comfy couches, bean bag chairs, or (gasp) yoga pants?

To be fair, many icebreakers are not formal. In fact, they can be cheesy and sometimes downright offensive. This isn’t true across the board, but we’ve definitely experienced some doozies. Women may prefer comfortable clothes and humor, but we aren’t children. Drop the dumb games.

5. Women’s conferences only include, well, women

Though the intention behind female-only conferences is good, they still perpetuate the myth that women need to learn how to behave in order to become leaders. This is simply not true. The same leadership skills that work for men work for women as well.

We need conferences designed to challenge the idea that there is one right style of leadership – and that that winning style can only be achieved by straight white men. Yes, women must be included in these conferences, but so must leadership. How can we drive change without all the leadership in the room?

So what do we do?

Don’t try to change women for the job. Instead, enable them to change the job.

Though the EY conference is an extreme example, it highlights one of the biggest issues we have. We give advice to women focused on how to act just like those before them – whether male or female. For some reason, we believe there is only one way to be in order to be successful. That couldn’t be further from the truth.

When I was initially tapped for my first corporate executive position, I actually said, “No thank you.” I feared I’d have to become someone I’m not. I feared I would have to compromise my family, my health, and even my identity to be successful.

It took a while to realize that I have unique qualities that I could exploit (humor, humility, and the ability to inspire) and that the things that I wasn’t so good at (extensive travel, detailed operations) could be addressed by strengthening the team around me.

I love the quote by soccer legend Abby Wambach, “Imperfect men have been empowered and permitted to run the world since the beginning of time. It’s time for imperfect women to grant themselves permission to join them.”

We have got to stop pretending that there is a linear formula for being a successful leader. Instead, we must help women celebrate and exploit their unique, positive qualities.

Go ahead, hold women’s conferences, but shake them up … significantly

In our perfect world, there would be no need for women’s conferences or talk of gender parity. We’re making progress toward this goal: The number of women rising to a top CEO spot has increased 24% over the last five years. But obviously, we’re not there yet.

So, until we arrive at the nirvana that is true gender diversity (of all kinds, mind you), women’s conferences offer a unique opportunity for us to learn from each other. However, that only happens if the women attending and leading are allowed to show up as their authentic selves.

Showcase speakers that tell it like it is. Give real-life actionable examples of women who’ve crushed their careers without selling their souls, and play some fun music while you’re at it.

A few weeks ago, my podcast cohost and I experimented with something like this. Imagine a conference that kicks off with dancing and lip synching into a room packed to the gills with high-powered and successful women in the financial industry.

Not sounding so bold?

One of us was wearing a bedazzled tracksuit, and we may have had props, parody videos, and cheese cubes. And, it wasn’t just a show. We got real down and dirty about the things that helped us rise into executive positions. The crowd left incredibly inspired to be more of themselves, both in work and in their personal lives.

If we can’t shake up a conference, how can we hope to shake up the workplace?

It is time we start acknowledging that we must get much more creative in our approach to gender diversity if we ever want to have a shot at reaching parity.

We need to start asking the tough questions:

  • What is working and what isn’t?
  • What bold moves do we need to make to go from looking at gender diversity as a problem to solve and embracing it as an organic source of strength, especially in the corporate world?

Whether you’re a decision-maker or low down on the totem pole, one thing is clear. It is going to take all of us thinking well beyond the current conference box to get where we need to be.

Erin Hatzikostas is a former corporate CEO turned career coach, speaker, and podcast host. She’s the founder and CEO of b Authentic inc. You can listen to her offbeat career podcast, “b CAUSE with Erin & Nicole,” or you can start pumping up your career with her free guide,”10 Simple Steps to a Rich Career.”

This article was originally published on Insider December 11, 2019.

Read the original article on Business Insider