Research and Links of Interest
Gender Diverse Boards Produce Better Results
Numerous independent studies have concluded that companies perform better when women serve on their boards of directors:
Companies in the top-quartile for gender diversity on executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation than companies in the bottom quartile for gender diversity (McKinsey & Co. 2018). In addition, gender-diverse leadership contributes to the long-term success of a company. In 2019, a study of 2500 companies showed the percentage of the board that is female contributes 8% to the predicted five-year return on invested capital for the company (FCLTGlobal 2019).
Fortune 500 companies with three or more women board directors, sustained over four years, significantly outperformed those with sustained low representation by 84% on return on sales by 60% on return on invested capital, and by 46% on return on equity (Catalyst 2011).
Having three women on the board, rather than just one or none, increases the effectiveness of a corporate board of directors. U.S. companies that began the period from 2011 to 2016 with three or more female directors reported earnings per share that were 45% higher than those companies with no female directors at the beginning of the period. Moreover, for the companies in the study, adding any number of female directors was correlated with higher median increases in earnings per share compared to losing women from the board during the same period (MSCI 2016). Similarly, for profitable firms, a move from no female leaders to 30 percent representation is associated with a 15 percent increase in the net revenue margin (Noland et al. 2016).
Current Representation of Women on Boards
Although progress has been significant over the past decade, gender parity remains a distant goal. Women comprise 26% of S&P 500 boards (Spencer Stuart 2019), 27% of Fortune 500 boards (Heidrick & Struggles 2020), and 22.6% of Russell 3000 boards (2020 Women on Boards 2020).
New director appointments paint a promising picture. Of the seats filled last year on Fortune 500 boards, almost 44% went to women, a doubling of the percentage over the past decade (Heidrick & Struggles 2020). Similarly, women comprise 46% of the incoming class of directors for S&P 500 companies, compared to 40% last year. However, 31% of the boards that appointed women in 2019, did so by increasing the size of the board (rather than by replacing a man with a woman). As a result, the overall representation of women on S&P 500 boards remains stubbornly low (Spencer Stuart 2019).
The number of boards with three or more women directors is on the rise. The portion of S&P 1500 companies with three or more women on the board has grown from 20% in 2016 to 44% in 2020 (EY 2020). And in 2019, the number of R3000 companies with no women on their boards decreased by 25% (2020 Women on Boards 2019).
Even with this notable progress, the rate of change is still slow. According to the most recent update from Equilar’s Gender Diversity Index, it will take nearly 40 years for Russell 3000 companies to reach gender parity (Equilar 2019).
Senior Women Lawyers: An Untapped Vein of Board Talent
Senior women lawyers constitute a rich, largely untapped vein of board talent. The share of women executives serving as general counsels at S&P 500 companies nearly doubled in the past decade (12.8% in 2007 to 23.8% in 2017) (Pew 2018). And in 2018, women held the top GC role in 28% of Fortune 500 companies (Russell Reynolds 2018).
Meanwhile, the roles and responsibilities of the chief legal officer have continued to expand. In an ACC survey of over 1500 CLOs from around the world, two in three CLOs reported that they regularly attend board meetings. Furthermore, 93% of Fortune 500 CLOs have a direct reporting line to the CEO (ACC 2019).
Women also hold a growing number of senior positions at law firms. Women comprise 20% of equity partners at AMLAW 200 law firms (NAWL 2018).
The Value of Lawyer-Directors
On balance, directors view having a general counsel on the board as a net positive, and most directors agree that that the skill sets of the modern CLO, including risk evaluation and strategic thinking, are well suited to the role of a public company director (NYSE 2014).
A recent study on the role of lawyer-directors on the boards of financial institutions is illustrative of the value that lawyers can bring to corporate boards. Since 1999, the portion of banks with lawyers on their board has increased from 40% to more than 70%. The study demonstrated that adding a lawyer to the board of a financial institution produced a 5.7% average increase in the bank’s value—a causal rather than an associative link. The study further found that banks with lawyer-directors are more effective at calibrating their tolerance for risk-taking relative to current economic conditions (Guernsey et al. 2020).
Other research outside of the banking industry has shown that companies with lawyer-directors experience a 9.5% increase in firm value over corporations with no lawyers on the board. Lawyer-directors play an essential role in helping companies manage the significant rise in litigation and regulation affecting businesses and changes in CEO compensation (Litov et al. 2014).