A client recently reached out to check whether Hawkamah and Mudara IoD would assist with the appointment of an independent women director on its board. Despite the fact that inquiries relating to women directors have been few in the past, the request did not come as a surprise. After all, the client is a regionally based conglomerate with investments across varied sectors and in different jurisdictions. The organization is renowned for its adoption of corporate governance, environment and social best practices. The question really was “what took you so long?” The organization is a high profile, relatively large company delivering consistently in terms of financial performance and creating value to its shareholders. As the strategy is currently to expand to new countries and diversify away from heavy industrial, energy and material focused investment approach to healthcare, and consumer discretionary sectors, it was only logical for the organization to consider empowering its leadership with a wider perspective and a different mix of skills. In this respect, hiring a woman (or more) on the board made business sense from a performance and corporate governance perspective. This organization did not need a quota or any other coercive measures, to implement practices that were seen as essential to business successes in free market economies and a source of competitive advantage.
The gender issue is also a recurring topic in family governance. In one of the family governance mandates, the current owner – second generation - of a sizeable family business is faced with a different challenge. The owner is keen on setting up the family governance. He frequently mentions that now is the right time to transition and to depart from the management silos setting that slowly sneaked into the organization. The business had started some 60 years ago as a small trading business. He supported his father, the founder of the business, in operating a car dealership and from there, they expanded to food and clothing franchises. The current owner had witnessed and contributed to the rise of this empire that is very close to his heart and with which he shares a family name. It is the same case for a family business, he adds, you never actually own it, you merely look after it for the next generation, pointing at a Patek Philippe ad, in one of the magazines in his office. His son and three daughters are all working in the family business, constituting the third generation. He has given each a business division to run, creating silos, while he managed the group company. He always hoped that his son will succeed him, continue the legacy and has not spared an effort to groom him for that position. His challenge: taking away the emotions, he firmly believes that his first daughter is the best fit to run the group.
The above two scenarios are revealing of the change that is taking place in relation to women’s participation in boards and executive management teams. One reflects the need for capable women on the boards and the other highlights family intra-transitional challenges as more women become qualified to run the business of their ancestors. Lubna Al Olayan who appears on Forbes list for World Most Powerful Women in Finance, along the sides of influential peers like Christine Lagarde, the Managing Director of IMF was only recently elected to the board of Saudi Hollandi Bank, becoming the first Saudi woman to join the board of a Saudi listed company. Setting a precedent, one can add.
In addition to the intuitively strong business case, research and statistics support the proposition and highlight the impact of gender board diversity on the performance of companies. A recent Credit Suisse study concluded that companies with women on their boards tend to outperform companies without women directors in terms of share price performance. The study which covered 2,360 global companies, over a six year period, reported a correlation between having at least one woman on board and four performance related measures: Higher return on equity, lower gearing, higher price to book value, and better average growth. Gender diversity, it was reported, also reduce the risk of bankruptcy. Having one woman on the board reduced the risk by 20%, and the risk is further reduced as more seats are occupied by women, according to a Leeds University Business School report.
Corporate governance advocates advance that increasing women representation on boards of directors is best practice and is believed to increase board effectiveness which in turn leads to better performance. Appointing women on a company board sends clear signals about the company’s commitment towards corporate governance. By virtue of their differentiated experiences, characters and personality traits, women influence how boards carry their duties and responsibilities. According to the UK Financial Reporting Council, “the board’s role is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls.” One of the most evident benefits of diversity is attaining more balanced boards.
On the psychological front, a number of factors also support the empowerment of women to have board and senior executive roles. As a first argument, heterogeneous group dynamics reduce consensus as a basis for decision making, providing instead a sufficiently challenging environment to debate decisions. As a result, better decisions are taken and they are taken faster. A study conducted by Professors Woolley and Malone, in fact, concludes that including more women in a group would increase its collective intelligence. Similarly, supporting the case, a study titled “Are Women Better Leaders Than Men?” saw women outscore men in 12 out of 16 leadership competency, surprisingly scoring higher on taking initiatives and driving results. Organizational success factors appear to drive women’s leadership style. As they seem better at retaining talent, increasing customer satisfaction, ensuring employees’ engagement, and improving profitability. Women participation, it was concluded, contributes positively to these factors: risk management, greater commitment to ethics and corporate governance, and being attuned with consumers’ preferences and spending decisions.
Human beings are creatures of habit that even the best arguments may not be enough by themselves to drive change. This explains the move of governments to issue quotas and enforcement measures. Well governed, enlightened chairmen, boards and organizations are the first to acknowledge that diversity increase board effectiveness and lead to better performance. So isn’t it time for more women like Lubna Al Olayan and Her Highness Princess Amira Al Taweel to lead more of our boards and executive teams?