Who Runs the World? – Discussion of Engineered Corporate Equality

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‘WHO RUNS THE WORLD? – DISCUSSION OF ENGINEERED CORPORATE EQUALITY’

By Jessica Richens

Back in 2011 Beyoncé answered this question simply: “girls”, in her song ‘Run the World’. Yet in 2011 only 12.5% of FTSE100 companies board seats were occupied by women (Griffiths 2018). Granted this is probably not the type of female empowerment Beyoncé was referencing, but the lack of women in positions of power in our corporate world in 2011 would contradict her answer.

In 2018 this percentage had risen to 29%.

What has changed?

In 2011, Lord Davies introduced a voluntary target-based system to improve the gender balance on company boards in the UK, this voluntary approach was intended to increase the number of women in leadership roles, and therefore move towards greater corporate equality. This system was implemented with the ambition to improve gender equality specifically across UK businesses, by moving more capable women into seats on corporate boards.

FIGURE 1: Source: Grant Thornton 2019

This voluntary approach has resulted in a 16.5% increase in the number of women on the board of FTSE 100 companies (Griffiths 2018). A doubling of the number of women on FTSE 100 boards seems like the voluntary approach has been a success.

Norway in contrast introduced a highly successful gender quota law. Introduced in 2007 firms were required by law to employ a prescribed number of women to their board. Listed companies are required to have a gender ratio of at least 40/60. The result; a significant increase in female board members to 42% in 2016, up from just 6% before the introduction of the law. Norway has reaped the benefits as it has been found that boards with a higher proportion of women are less likely to be ‘beset by fraud or shareholder battles’ (Economist 2018). Plus, there has been no negative correlation between the implementation of quotas and return on corporate assets.

Should the UK be implementing quotas to keep up with the gains of Norway?

Are quotas the way forward? Perhaps not. Despite the success in Norway quotas can promote the wrong people, regardless of good intention. Philippa Foster Back, Director at the Institute of Business Ethics, says: “In setting out to achieve the numbers you may not get the right people for the board, which is vital and takes time”, which in the context of our thinking may lead to women being promoted before they are ready.

There are moral concerns surrounding quotas, applicants may form assumptions that positive treatment is based on their gender instead of their abilities and capabilities. This perception can have negative impacts on both the individual and their colleagues. (Grant Thornton 2019) and can have negative effects on workplace morale and productivity if there is resentment between workers.

There are moral concerns surrounding quotas, applicants may form assumptions that positive treatment is based on their gender instead of their abilities and capabilities. This perception can have negative impacts on both the individual and their colleagues. (Grant Thornton 2019) and can have negative effects on workplace morale and productivity if there is resentment between workers.

Female promotion ahead of male colleague can be viewed as a ‘box-tick’ and can lead to the promotion of people above their current ability levels. However, this view is often not the case and is often a negative genderrole concept. These concerns can lead to a decrease in the overall effectiveness of the board. (PWC 2020). Therefore, a voluntary target-based system is favourable for the UK as it removes the pressure off firms to promote merely to hit a quota and it drives accountability.

Why do we have inequality?

So, what deters women from pushing themselves forward? There are studies to suggest promotion in a successful women’s life can have significant impacts on their domestic life. Johanna Rickne studied the trend between promotion and divorce among women in politics. She found that there is a higher divorce rate in women who get promoted vs women who did not. Whereas the relationship between men who got promoted and those who did not, and divorce is almost identical (TEDxTalks 2017). This indicates that moving up the corporate ladder can have a negative impact on a woman’s life, which may deter women from putting themselves forward for promotion.

There is an inherent difference in attitudes toward competition, with women on average more likely to shy away from competition, which reduces the likelihood of a women putting herself forward for a board seat. There are gender differences in beliefs about relative performance, with men having more confidence in their abilities whilst women tend to be less optimistic about their abilities (Niederle and Vesterlund 2005). A commonly cited statistic is ‘men will apply for a job when they meet only 60% of the qualifications, but women will only apply if they meet 100% of them.’ (Hannon 2020), therefore we can predict that the number of women who apply for promotion to board level will be less, due to their lower confidence in their own abilities.

A commonly cited statistic is ‘men will apply for a job when they meet only 60% of the qualifications, but women will only apply if they meet 100% of them.’ (Hannon 2020), therefore we can predict that the number of women who apply for promotion to board level will be less, due to their lower confidence in their own abilities.

The need for equality

We need more women in our corporate world, as more diversity ensures that a board is not compromised of likeminded individuals. Women have a different skill set to men, based on their personalities, with strong attributes such as courage, honesty and tact. Therefore, their inclusion at a higher corporate level can drive efficiency, and lead to a more innovative environment, as they work alongside men to bring a different point of view to a board.

Despite the positive trends we have seen among UK businesses after the target-based system, women are still under-represented at the top level.

Who should run the world?

A more equal corporate world sounds like a social utopia, however it is more beneficial that many would think.

Today 682 women in total sit on Boards across the FTSE 350, compared to only 289 in 2011 (GOV.UK, 2015), however does this increase in women improve the quality of the board? It is noted that women have an improvement on aggregate performance through channels such as changing the nature of discussions and challenging ideas. According to the Harvard Business Review (2012), boards with a higher proportion of women report a 42% greater return on sales and a 53% higher return on equity. Women are more likely to deal effectively with risk, but also better address the concerns of customers and shareholders, whilst focusing on long-term priorities.

The economic case for more shared corporate leadership, predicts stronger, positive GDP impacts, with higher levels of both employment and productivity (EIGE 2020). The European Institute for Gender Equality forecasts by ‘2050, improving gender equality would lead to an increase in EU (GDP) per capita by 6.1 to 9.6%, which amounts to €1.95 to €3.15 trillion’, whilst improvements in equality would also lead to an ‘additional 10.5 million jobs in 2050, which would benefit both women and men’.

In our corporate world having a more equal board will lead to social and economic benefits. Girls need to continue to build on their belief in their talents and if the trends that governments are setting, through the introduction of voluntary targets and even quotas continue, soon we may have more of a fair share of girls in our top corporate seats - ruling the corporate world

According to the Harvard Business Review (2012), boards with a higher proportion of women report a 42% greater return on sales and a 53% higher return on equity. Women are more likely to deal effectively with risk... concerns of customers and shareholders, whilst focusing on long-term priorities.

References

“Are Gender Quotas Good For Business?”. 2019. Grant Thornton UK LLP. https:// www.grantthornton.co.uk/insights/are-gender-quotas-good-for-business/.

“Corporate Diversity: Law, Targets And Corporate Governance”. 2020. Pwc. https://www.pwc.co.uk/services/legal-services/insights/corporate-diversity-lawtargets-corporate-governance.html. Accessed 20/01/2020

“Economic Benefits Of Gender Equality In The EU”. 2020. European Institute For Gender Equality. https://eige.europa.eu/gender-mainstreaming/policy-areas/ economic-and-financial-affairs/economic-benefits-gender-equality. Accessed 20/01/2020

“Quotas To Gender-Balance The Board: Norway’s Drastic Action Worked”. 2020. Ideas For Leaders. Accessed February 9. https://www.ideasforleaders.com/ ideas/quotas-to-gender-balance-the-board-norway%E2%80%99s-drastic-actionworked. Accessed 09/02/2020

“Ten Years On From Norway’s Quota For Women On Corporate Boards”. 2018. The Economist. https://www.economist.com/business/2018/02/17/ten-years-onfrom-norways-quota-for-women-on-corporate-boards. Accessed 09/02/2020

“Women On Boards Davies Review”. 2015. Assets.Publishing.Service Gov.Uk. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/482059/BIS-15-585-women-on-boards-davies-review-5- year-summary-october-2015.pdf.

Arguden, Yilmaz. 2012. “Why Boards Need More Women”. Harvard Business Review. https://hbr.org/2012/06/why-boards-need-more-women. Accessed 05/02/2020

Griffiths, Andrew. 2018. “Record Number Of Women On FTSE 100 Boards”. GOV. UK. https://www.gov.uk/government/news/record-number-of-women-on-ftse-100- boards.

Hannon, Kerry. 2020. “Are Women Too Timid When They Job Search?”. Forbes. Com. Accessed February 9. https://www.forbes.com/sites/nextavenue/2014/09/11/ are-women-too-timid-when-they-job-search/#dd31726411d6. Accessed 09/02/2020

Niederle, Muriel, and Lise Vesterlund. 2005. Do Women Shy Away From Competition? Do Men Compete Too Much?. Cambridge, Mass.: National Bureau of Economic Research.

TEDxTalks ‘All the single ladies: Impact of job promotions on divorce | Johanna Rickne | TEDxUppsalaUniversity’ YouTube video, 13.47. 13 Dec, 2017. https:// www.youtube.com/watch?v=SCcX9TtdvWU Accessed 20/01/2020