Corporate Governance

Boards and the Benefits of Diversity

By J. Robert Brown

A few Sundays ago, the NYT Magazine contained a story titled “Childless Europe.” At first, the story seemed to be another harbinger of doom about the declining birthrate in Europe. But in fact, the article was more sophisticated and more insightful. It in fact explained the huge disparity in birth rate among countries in Europe, with the countries of Scandinavia having a relatively healthy birth (as does the United States), while Southern Europe (Spain, Italy and Greece) do not. What explains the difference? Apparently in Italy, children live with their parents longer. As the piece noted, this may be the best contraceptive.

But a more significant explanation is the lack of flexibility when it comes to gender roles. In Italy, despite its reputation as a child friendly, family oriented community, the birthrate is among the lowest in Europe. There, women are expected to leave the work force when they have children. As a result, only about half of the women in Italy are in the workforce. Moreover, child bearing is associated with a fall in economic status as one of the parents leaves the job market.

Other countries, however, take a more flexible attitude. As the article noted, “many countries with greater gender equality have a greater social commitment to day care and other institutional support for working women, which gives these women the possibility of having a second or third child.” In Norway, for example, women receive 54 weeks of maternity leave and the state subsidizes the day care system. The attitude shows in the percentage of working women, with 75-80% of women in Scandinavia in the workforce.

In the United States, where government support is far less prevalent, the economic system is more flexible, with mothers able to cycle out but then back into the work force more easily. In other words, the more that the economic system accommodates women in the workforce, the higher the birthrate.

Whatever flexibility exists with respect to gender roles in the United States, it does not apply to the board room of public companies. Employing “mirror image” boards, most companies have little gender representation among its directors. The percentage of women directors hovers slightly over 10%, a percentage that smacks of tokenism. The problem, among others, is that the boardroom becomes a place of stifling consensus, filled with individuals who look at matters in similar or identical terms. The board, therefore, becomes a place for rubber stamping executive decisions, depriving the CEO of a useful set of alternative views, particularly from a group representing over half of the worlds population.

Who knows how long it will take corporate America to realize the short sightedness of this approach. For at least two countries in Europe, the legislature has intervened and mandated a minimum percentage of women on the board. But over time, as the article in the NYT Magazine illustrates, those who see the advantage of gender flexibility will reap the advantages. Those that do not will suffer accordingly.

Full post as published by The Race to the Bottom on July 10, 2008 (boomark / email).