Increasing representation of women on private sector boards in Scotland

2. Rationale for Improving Gender Balance and Broader Diversity of Boards

Introduction

The rationale for improving the diversity of board membership draws on evidence that suggests this will deliver more effective boards that are more attuned to customer need and can develop new ideas that are supported by a wider range of experience (Dutton and Raeside, 2014). Diversity may improve board processes including, the provision of different perspectives, widening the content of board discussions, raising issues pertaining to multiple stakeholders and using their interpersonal skills to affect boardroom dynamics (Konrad, Kramer and Erkut 2008). There may also be improvements in corporate governance and the ability of boards to undertake their strategic roles (Davies, 2011, Kang, Ding and Charoenwong, 2010) including bringing skills in ' co-operation, collaboration, facilitation and persuasion' (Rosati and Bailey, 2013).

More specifically a range of business benefits can be identified (Campbell and Minguez-Vera 2008; 2010) including:

• An increase in the talent pool of labour.
• Improved organisational performance.
• Increased responsiveness to the needs of the marketplace.
• Increased financial value as investors consider, on average, women on the board add value to the company.

A rebalancing of gender on boards can be considered as a business opportunity.There should be recognition that it is the balance itself that contributes to the better performance. The benefits will be maximised if there is skilful management of gender differences (such as different communication styles or career cycles) rather than ignoring them (Wittenberg-Cox, 2014).

In addition to the business benefits, the equalities perspective is also critical.It 'is now no longer acceptable for the voice of women to be absent from the boardroom' (Davies, 2014 ). In a Scotland in which women account for 51% of the population ^[5] , 49% of employees ^[6] , over half of college enrolments ^[7] and entrants to Higher Education ^[8] , women are underrepresented in business, most noticeably at more senior levels. Only 21% of Scotland's small and medium-sized enterprises ( SMEs) are majority led by women ^[9] and although 49% of companies have at least one female director, women only account for 31% of company directors ^[10] .

Looking back on progress against the Davies Review targets in 2015, Davies highlights that as the proportion of women in board positions has increased they have found that the business case is mentioned less often, despite the case being stronger given the impact women are having (Davies, 2015).

Views of Stakeholders

The stakeholder interviews endorsed both the business benefits and equalities perspectives highlighted above although there was a difference in emphasis among different interviewees. For example, some emphasised achieving greater diversity and gender balance as a mechanism for achieving greater equality in society. Others saw the importance in terms of the contribution it could make to developing a competitive business base. Some interviewees saw both perspectives as equally important. Whatever their perspective there was a strong sense that stakeholders saw this as a 'critical' issue for Scotland if it is to be a forward looking and prosperous country.

The interviews also perceived there are potential downsides to seeking gender balance and broader diversity within boards, including a backlash or resistance from incumbents, creating 'fearfulness or nervousness' about talking about gender and broader diversity as not everyone is comfortable with it and the language they should use. This can also lift the lid on practices in companies which may be preventing women progressing to senior management and then to board level which cannot be easily resolved.

Views of Companies

E-Survey

Companies completing the e-survey were asked about what impact the gender make-up of their board has on specific elements of their company, how it is perceived and its performance. Whilst not explicitly a question about what the rationale for aiming to improve the gender balance of their board, this allows the 'business benefits' arguments put forward in the literature and highlighted by stakeholders to be tested. As this is the first instance in which the e-survey result are being presented, it is important to stress that the small sample size means that these findings should not be considered representative of the Scottish business base.

Figure 1: Impact of Board Make Up on the Organisation (%)

	+ve impact	-ve impact	Net score	No impact	Don't Know
Ability to access external funding	16	-	16	56	28
Turnover	27	5	22	42	26
Perception of potential recruits	47	2	45	37	14
Perception of potential and existing clients	43	5	38	36	17
Quality of corporate governance	47	7	40	33	14
Understanding of customer need	47	5	42	33	16
Perception of potential Board Members	31	14	17	33	21
Productivity	40	5	35	30	26
Perception of existing staff	51	7	44	28	14
Range of skills, capabilities, experiences and perspectives	63	16	47	19	2

Source: TERU E-survey (2015)

Notes: n=43

Looking at the views of companies on this issue:

• The first issue to note is that many companies do not know what impact the composition of their board has on many of these elements - with over a quarter not knowing what the impact of board composition has on turnover, productivity or access to finance.
• Looking at the ' no impact ' column, more than half (56%) of companies felt that the gender make-up of the board has no impact on their ability to access funding.Similarly, 42% of companies felt the gender make-up of the board had no impact on turnover. For most other elements, between 30% and 40% of companies felt the gender make-up of the board had no impact.In other words, the majority of companies who responded felt that the gender composition of the board did not impact on key elements of the company or its performance.
• In terms of positive impacts , the gender make-up of the board is most likely to be seen to have a positive impact on:
• Range of skills, capabilities, experiences and perspectives available at board level (with 63% of companies saying the gender make-up of their board has a positive impact on this).
• Perceptions of existing staff (51%).
• Perception of potential recruits (47%).
• Understanding of customer need (47%).
• Quality of corporate governance (47%).

• In general, those elements with a high positive score are also those with a high net score . The high net score is calculated by subtracting the percentage saying the gender make-up of their board is having a negative impact from the percentage saying it is having a positive impact.For example, if the percentage saying it was having a positive impact was 47% and the percentage saying it was having a negative impact was 13%, then the net score would be 34%.
• The two elements where the gender make-up of the board is most commonly perceived to have a negative impact is on the range of skills, capabilities experiences and perspectives available at board level (with 16% of companies saying the gender make-up of their board has a negative impact on this) and perception of potential board members (14%).

Figure 1 provides a good overview of the impact the gender make-up is considered to have on different elements of a company and its performance.However, to fully understand whether the gender balance of boards is considered to bring benefits to companies, it is necessary to compare the answers given by companies that have achieved gender balance and those that have not. Given that not all boards have an even number of board members, we have used 40% of board members are female as a cut off.This has the additional advantage of slightly increasing the sample size compared to using a 50% cut-off (giving us 15 in this group compared to 10 if only those companies with a 50/50 gender balance or more female than male board members was included).Even with this approach, care needs to be taken as the sample sizes are small.

Figure 2: % Reporting Positive Impact by Board Composition (%)

	All companies	Female account for less than 40% of board	Female account for 40%+ of board	No. of female board members increased in last 5 years
Range of skills, capabilities, experiences and perspectives	63	54	80	86
Perception of existing staff	51	39	73	81
Perception of potential recruits	47	39	60	67
Understanding of customer need	47	39	60	67
Quality of corporate governance	47	39	60	67
Perception of potential and existing clients	43	41	47	57
Productivity	40	36	47	48
Perception of potential Board Members	31	29	36	50
Turnover	27	25	33	33
Ability to access external funding	16	14	20	19
N	43	28	15	21

Source: TERU E-survey (2015)

In terms of the differences between companies in the different categories:

• For all elements examined, companies where females account for 40% or more of the board were more likely to say that they thought the composition of their board had a positive impact.
• Particularly large differences were observed in relation to the numbers reporting the board composition has an impact on the:
• Range of skills, capabilities, experiences and perspectives - 80% of companies with boards that are at least 40% female felt their board composition is having an positive impact on this, compared to 54% of companies with boards that are less than 40% female.
• Perception of existing staff (73% vs. 39%).
• Perception of potential recruits (60% vs. 39%).
• Understanding of customer need (60% vs. 39%).
• Quality of corporate governance (60% vs. 39%).

Similarly, boards where the number of female board members had increased in the last five years were more likely than all companies (and in many cases than companies where females account for 40% or more of the board) to say that there board composition was having a positive impact on each of these elements.This suggests that even where there is some distance to go to achieve gender balance, increasing the representation of females on the board is helping improve the skills, capabilities, experiences and perspectives available, the perceptions of the company in the eyes of staff, potential recruits, board members and clients, their understanding of customer need and quality of corporate governance.

Case Studies

Case study companies were generally supportive of the idea that achieving gender balance and broader diversity within boards is beneficial for companies in principle but there were mixed views about the scale of the benefits.This is important as if the impacts are not seen to be significant this can influence the amount of attention given to the issue and commitment to action to address any imbalance. In particular, if companies are not convinced that achieving gender balance and broader diversity will have an impact on their competitiveness and profitability then they will not focus much attention on this as an issue.

Those companies that do see a strong business case for improving gender equality and diversity identified a range of reasons for doing so.Some examples of these are given in the box below.These primarily relate to ensuring the board has access to a wide range of different perspectives, skills and experiences.

Case Study Examples: Rationale for Improving Gender Balance of Boards

Case Study A has increased the number of women on their board in recent years so that they now have a board which is 40% female but they have a target of achieving 50:50.They believe diverse boards are more effective because they are more likely to be balanced in terms of skills and experiences and therefore generate a range of perspectives on any issue. ' Boards with the necessary balance of skills, experience, opinions and knowledge will be best placed to make sound strategic decisions…'The view is that all male boards are unlikely to have that balance and this can reduce their effectiveness: ' an imbalance at the top creates risk for the business'.

Case Study B has a 50:50 split on their board although they have only 2 directors.Equality and diversity are very important to the company.The owner is female and wants to lead by example. She also believes that gender balance on the board increases the performance of the company, people with different genders 'have different things to bring to the table'. Gender balance can enhance team working and provide a better approach to problem solving as each gender generally looks at problems in a different way. It can improve the board's performance because it allows a balanced perspective on the issues/problems to be solved improving the quality of corporate governance and understanding of customer needs. It also has a positive impact on turnover and productivity. Having gender balance also improves the perception of the company held by potential recruits, staff, clients and other potential board members.

Case Study F has more women on their board as 5 of the 7 board members are female. They are a recruitment company and feel this is beneficial as many of their clients are businesses where the majority of the workforce is female. Having more women on the board reflects the customers they have and gives them a stronger connection to their client base. They believe equality and diversity on boards leads to diversity of thought which makes creative and innovative thought more likely.

Case Study H has a diverse board in terms of skills and age with a wide age range among the directors but only one of the directors is female. They would like to increase the number of women on the board.At senior management level there is growing awareness of how increasing diversity can bring benefits for the business including increasing creativity and innovation as diverse groups make the best decisions. This in turn creates a commercial imperative for diversity as it will help the company to be more forward looking and successful.

Case Study I has seven board members and two are female. They would like to increase the number of women on their board as they believe diverse boards are more effective and more able to develop different ways of thinking about issues. They perceive that within the life sciences sector in which the company works women (and other groups) are an ' untapped resource' which need to be utilised more widely and effectively. Having the required skill set is still the most important factor when selecting new board members, but achieving a diverse board is the second most important factor.

Respondents in the case study companies expressed similar views in relation to the benefits of improving the broader diversity of boards - i.e. that it would ensure that a range of skills, experience and perspectives are available in decision making.

Not all respondents in the case study companies felt that there were benefits to improving the gender balance and broader diversity of boards and some felt there could be downsides for their companies. Concerns included that:

• The policy could become a 'box ticking exercise' leading to the appointment of candidates that do not match the companies' needs. Many case study respondents conveyed that while equality and diversity are valued in the company, the skills to do the job are seen as far more important than any particular personal characteristic.
• If companies are forced to do this (for example by applying quotas) this could lead to tokenism and/or undermining the achievements of women that have achieved board positions through merit.
• Some sectors that have a low proportion of women in their workforce may find it particularly difficult to achieve.Companies in these sectors expressed concerns that they may be stigmatised as a result.

Some examples of these views are given in the case study box below.

Case Study Examples: Downsides of Improving Gender Balance of Boards

Case Study D at the moment there are more women on this company's board but the directors do not feel that this has any particular impacts on the performance of the company, although it may have a positive impact on the perception of the company by potential recruits as the workforce in the sector and in the company (including senior management) is predominantly female. There is a very low turnover of board members. The company has added only one board member to the board in the last 5 years. The owners were looking for someone who was able to take an overview of the company and understand all of the areas that are important to the company, from production to HR. They wanted someone with strong business skills who understood the commercial aspects of the business and who was good at negotiating. They wanted to look inside the company because they like to bring people through to management. They selected one of their female project leaders. The candidate's skills and experience were more important in determining her selection than her gender.

Interviewees in Case Study G believe the issue of achieving gender balance and broader diversity within the company is important, but it is not one that is discussed at great length within the company. Ensuring that the company recruits the right individual for the job in terms of their skills and performance is more important than their gender.

Key Messages

1.The literature suggests that there are two main rationales for improving the diversity of private sector boards:

• Diversity leads to more effective boards by broadening the range of perspectives and expertise, which in turn delivers business benefits including improved organisational performance, improved access to resources (especially human resources) and increased financial value.
• An equalities perspective requires that individuals from across the protected characteristics are represented across all aspects of the labour market (and society more generally), including at board level.

2.Both of these rationales were also highlighted by the key stakeholders interviewed as part of this study - although there were different views across the stakeholders about which was more important or the balance in emphasis that should be placed across these different rationales.

3.Many companies completing the e-survey felt that the composition of their board was having no impact on the company, how it is perceived or its performance. In addition, a substantial proportion of companies had no idea whether the composition of their board was having an impact on these.

4.The elements that the composition of the board was most likely to be seen to be having an impact on by companies included:

• Range of skills, capabilities, experiences and perspectives available at board level).
• Perceptions of existing staff and potential recruits.
• Understanding of customer need.
• Quality of corporate governance.

5.Companies where females accounted for 40% or more of the board or where the number of female board members had increased over the last 5 years were more likely to say that board composition was having an impact on each of the elements of the company, how it is perceived and its performance.This is important evidence in support of the concepts set out in the literature about the benefits of improving the gender balance and broader diversity of boards.It also suggests that companies do not necessarily need to have achieved 50/50 gender balance to see these benefits - moving towards gender balance can help generate these benefits.

6.Case study companies generally felt that equality and diversity are important principles, but had mixed views on:

• Whether taking action to address the gender balance or broader diversity of their board was necessary or even appropriate.
• Whether improving the gender balance and broader diversity of boards brought business benefits.

7.Some stakeholders highlighted concerns that seeking gender balance and broader diversity on boards may lead to tokenistic approaches that may underpin the achievement of women (if they are perceived to be appointed to achieve parity rather than as a result of their skills and experience) and/or to raising expectations that cannot be met.Similarly, many case study companies had concerns - normally focused around whether this would lead to them recruiting individuals to their board that do not best meet their needs.