It’s all about what you do – from gender equality to strategic benefits

Most international surveys rank the Scandinavian countries among the very best in terms of women and men’s equality. At the World Economic Forum are all the Nordic countries among the top 10 and the independent NGO, Women Watch the small group of countries in northern Europe is also among the very best. So there is little doubt that there is something at the Scandinavian approach to gender equality, which rings true.

Although we are close to being world champions in the equality discipline it has not been something we have been particularly good at exploiting in a commercial sense. Instead we have resorted to toasts and speeches and we highlighting the individual women who have actually been able to beat their way through the glass ceiling.

In Denmark we have come up with initiatives such as charter for more women in management which is a set of principles like the Global Compact that is meant as tool for strategic gender equality development within originations or the torch campaign were individual companies communicate how they work with equality within their organization. While these initiatives are very fine they have the drawback that they simply perpetuate women and femininity as a handicap.

It is not because equality is not a real problem and that for many women means that being thirty is also de-facto means the end of their professional career in management. I just think that if we continue to regard the female gender as a handicap, we will never move beyond the challenges that both the country, but more specifically the individual companies are facing in terms of organizational development and continued competitiveness. A novel approach towards gender equality that has not exactly been dominant in the current debate neither here in Scandinavia nor to my knowledge anywhere else in the world.

Companies in charge know how to use sex

Men and women are in many ways different and in many cases, the direct opposites, like Mars and Venus, if I had to take a familiar example. Yet we are out unable to function without dealing each other’s good and sometimes bad sides.

Take, for example the trait of being entrepreneurial and the willingness to assume risk. Here is one of the traits that we perceive as being masculine and it is something we as a society appreciate. It turns out also that around. 2.5 times more men are entrepreneurs than women. Of course there are also female entrepreneurs and we are lucky to have them, yet it is a trait we usually put in connection with being a man.

As a counterweight to the enterprising men we see the risk averse women. The ability to understand and devise strategies to avoid risk is something we associate with feminine traits. It would be wrong to say that men can’t be risk averse but as we traditionally have favored the risk-taking in men and given credit to women who understand and is able to avoid risk it is the traits we see now as being most prominent. Remember that I do not judge if these traits are good or bad if they have come from the creation of stereotypes or if it is something in our genes, but only look at how people actual act.

There are many companies that have discovered that women are good in the role of risk monitors. Thus, more than 45% of audit committees in the Swedish OMX companies of women, which is in contrast to that is somewhere between 10 to 20% women on boards in general. It turns out also to companies with a gender-differentiated Board of Directors and generally cope better with the crisis at least the first one in 2008. These organizations have been able to respond quickly and consistently to market changes and have implemented the changes needed to make money in a difficult market. Examples include the Swedish Hennes & Mauritz (clothing and fashion), or the Danish firms Carlsberg (beer and soda) and D/S Norden (shipping), who all have women in both the Board and executive management. All three companies have fared well through the crisis and although it has been difficult, they have been able to exercise constant care in very troubled waters.

I’m not sure that these businesses have completely understood the significance that gender has had on their ability to adapt to its environment in an efficient manner, but in any event, it worked.

The patriarchal business is stalled

In contrast stand the less diversified firms, or said in another way, those who either did not want or have failed to attract other than male employees into their strategic management group. These companies have not been able to get rid of their risk as the market they operated in changed. This can obviously be due to many factors, but the interesting thing is that they generally perform worse than their more diversified counterparts. As a consequence of their inability to understand the organizational risks that they faced, they have not been able to show a sufficient earning capacity or have had direct losses. Both of which have been penalized by the stock markets to a degree where some of theses companies are valued less in terms of market price than the value it has according to its books.

An example of a company that has a high organizational risk seen with a gender perspective is firm Vestas. Time after time, Vestas has disappointed the market mainly because they have not had a good feel for what their stakeholders wanted to know and therefore could not live up to expectations that primarily professional market analysts and portfolio managers had. As a consequence, we have seen share prices today are at the bottom even when compared to its tangible value. As I have blogged about Vestas before there is no doubt that they have a good product, excellent production and are market leaders so there is no reason why there share price should not be much higher than it is today.

Two typical strategic moves that male-dominated companies have been using are first, to try to save themselves out of trouble by cutting costs; secondly to dismiss its leaders. It is not because this is a particularly patriarchal features that organizations use in times of recession, but the strategies only aims to reduce costs and simultaneously makes them unable to think further ahead, the whole exercise ends up in an actual fight for survival. To use an analogy it is like beating the body into submission and when that does not bring results we cut of the head. Not that some companies do have a lot of fat which can be trimmed but if there is no strategic thinking behind the cost reduction it will mount to little less than the ultimate loss of the business.

Everything else being equal, companies that have come through the crisis by adapting to and cultivating new markets perform better than those who are just coming through to save and reduce their organizations as the only means of maintaining a solid balance sheet.

The Scandinavian competitive advantage

Both here in Denmark but also in particular the rest of the countries were gender equality is high we have a resource that is not only unique but also virtually impossible to copy. By using our human resources to its full potential, we can provide competitive advantages in both the short and long term that will enable companies to navigate more safely and with less risk on the global market.

Universities and business schools produce far more women than male candidates. If business continues to let this resource remain unused and under utilized, we must compete on parameters where do not have many chances such as production costs and human and labour rights areas were we are unable or unwilling to compete.

Today there are already well-developed tools that can contribute to positive gender development in private and public organisations. The question is whether the HR departments, executives and board members are willing and have the courage to embark on an organizational debate about strategic consequences that extend far beyond the words and cheers and speeches in for example Charter for more women in leadership, Torch and other kinds of woman leader priced which reduces the debates to centre around gender quotas or not.

As individual and members of organisations we have to come to terms with the fact that women and men bring different approaches, viewpoints and perspectives to organizational development. And that these differences can be utilised strategically by organisations that know how. Through an understanding the differences that gender contribute with, we will be able to attract and retain skilled employees and thus be able to reap the benefits found in the fact organisations consist of people that think and behave differently. Female and male employees contribute, for better and for worse, to the development of companies and that the sexless organisation does not exist and that it is better to work to exploit these differences rather than ignoring them.

Are women on boards positively associated with tighter audit committee controls and thereby improved internal control?

There is evidence that gender diversity is associated with tight financial control and tougher monitoring practices, thereby also with improved risk management governance (Adams & Ferreira, 2008). Women are also more likely to enter monitoring committees while men enter other committees for example the committees that are dealing with compensations etc. Men that have entered the audit committee also have greater attendance problems than female colleges (Ibid). Furthermore research also shows that there is a link between feminine traits, gender diversity and more honest governance practices especially in relation to corruption (Sung, 2003). As women are elected to corporate boards in Denmark and Sweden it is expected that they will find their way into roles which is supported by their talent and their traits. The audit committee has the function of overseeing the governance of the board and act as an internal corporate control mechanism. Both of these roles are supported by feminine traits and research has shown that these committees are positively influenced by women participation. In this context a higher than average representation of women in the audit committee would support the argument that traits are important in relation to board behaviour and that women contribute to effective risk and audit management on Swedish and Danish boards.

The process of finding empirical evidence for the claim that gender has influence on audit committee performance is somewhat different for Swedish and Danish companies. The governance structure of Swedish companies is disclosed in a separate report, in most cases called the Governance report. In some cases the report can be found as part of the annual report. In the governance report, companies disclose their organisational structure, financial information about the board members, ownerships structure and the work done in different committees. The audit committee is part of this structure and normally have a separate section where the composition, processes and a recapitulation of the work done is disclosed. The governance structure is not always as transparent in Danish companies as seen in Sweden. Even though the companies disclose the same information it is less structured and there are more sources that one that has to investigate in order to get an overview of committees, composition and processes. Most of the information is, however, disclosed in the annual report. In cases where the structure was not totally clear I used other sources such as corporate website and greens online database.

The results show that the average size of a audit committee in Denmark is 5.1 (ranging from 2 to 13 members) while the same for Sweden is 3.4 (ranging from 3 to 7). For four of the Danish companies the whole board were part of the audit committee in practice making the audit committee and the board one and the same. The gender composition in Danish audit committees is 9% for highly diversified while it is 11% for low diversified compared to the 16% women on Danish boards in total. Compared to the overall average including all Danish companies in the survey the average female representation was 12 % making both high and low diversified companies below average. This indicates that women are not represented to a significant degree in the Danish audit committees. The average number of women in the Swedish companies in the survey is 32% indicating a significant gender impact compared to the total percentage of women on Swedish boards, which is 23,9%. Companies considered low diversified have significant lower than average women on the audit and the numbers indicates that women do not find their way in to the committee if there is an overrepresentation of men on the board.

In Denmark, companies have only recently been required to create an audit committee, which should function as a control body of the internal audit. The legislation is part of a general tightening of controls that have followed in the wake of several great financial scandals abroad and domestically. The Danish regulations are especially influenced by the practices in USA where audit committees have been in place for a longer period as an integrated part of the Securities and Exchange Commission (SEC) regulation (Collier et al., 2003). The short time that the legislation has been in place can explain why companies in Denmark have audit committees where the number of members’ range 2 to 12 and in some cases encompasses the whole board. As there are no rules on the size or composition of the committee the board can decide to elect the whole board as the audit committee. While this can be viewed as complying with the law, the practice is not a representation of “the intend” of having an independent review committee, that can supervise and improve the decision making process of the board in total.

The results from the audit committee gender representation from Denmark show that the differences in relation between the highly and low diversified are not significant. A contributing factor to this could be that the Danish legislation on the establishment of audit committees is not very old and therefore not an established practice on Danish boards. As boards get more acquainted with how the audit committee can be used and what competencies is needed for it members I would expect that more women will be represented as time passes. Another factor can be contributed to the fact that since Danish boards have fewer women in general it makes them less likely that women would be part of the audit committee. In contrast to Danish performance is the representation seen in Swedish boards significant different, where women have can be found to have taken almost half the seats on the audit committee. Swedish boards have more women on their boards than Danish ones but this alone cannot explain the 45% women on the audit committees. A possible explanation can be found in the traits of women and male behaviour.

As I have shown is there research that suggest that women on monitoring committees have better attendance and performance that their male colleagues (Adams & Ferreira, 2008). The reason why women have improved attendance can be explained by the trait of collective thinking. Women are associated with taking ownership of processes and creating working environments, which includes more stakeholders in problem solving (Yukel, 2010:468). In order to be seen as legitimate in the eyes of the collective, and maybe themselves as well, women tend to put more emphasis on own attendance. Men on the other hand will tend be more concerned with own opportunities and development of their career and will not look up on attendance as a way to advance their career. Male traits could lead them in the direction of careerism and informalism in order to develop their own opportunities rather than the aims collective as a first priority.

One of the major functions of the audit committee is to reduce the risks that the corporation is subjected too. It is therefore imperative that the members display behaviour, which strives to meet this goal. As women are associated with being more risk averse (Jianakoplos & Bernasek, 1998) it is more likely that they will be in groups where this trait can be utilized. The reason is that women over time will find a place on the board where they have the most impact and in this case it is the audit committee. As time passes and corporate boards distribute different roles to its members there will under ideal circumstances be a situation where the members’ talents and competencies will determine what function they will have. As Swedish companies have since 1st of January 2006[1] have been compelled to formulate audit committees as part of their structures, it is also more likely that women would have found their way into this committee given their unique traits.

Transocean the Unethical Company of 2010

The drilling company behind the 2010 BP disaster has issued the agenda for their annual meeting (Transocean_2011)and it is somewhat of a horror to see. The executive committee thinks that they did such a good job in 2010 that they have granted themselves over 43 million USD in compensation. Based on the 9,3 billion USD the company had in revenues in the same year. On top of that they took a substantial amount of money out as part of their long-term incentive plan.

Mr. Newman (President and Chief Executive Officer) . . . . . . . . . . .$5,400,000

Mr. Rosa (Chairman of the board). . . . .  . . . . . . . . . . . . . . . . . . . . . .$1,500,000

Mr. Brown (Executive Vice President, Legal & Administration).  .$1,500,000

Mr. Bobillier (Executive Vice President, Asset and Performance). $1,500,000

Mr. Toma (Executive Vice President, Global Business). . . . . . . . . . $1,200,000

Ms. Richard  (Senior Vice President, Human Resources and Information

Technology)…… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……$1,200,000 

For the compensation of non-employee directors for 2010 was 4,254,066 USD.

A long-standing reputation for safety

So did Transocean learn anything in the past year? Well when investigating the document they issued it could be interesting to look at how they precise themselves in the area of safety. And behold there is a paragraph in the executive summary on the high lights of 2010.

“We are the world’s largest offshore oil and gas drilling contractor and the leading provider of drilling management services worldwide. We provide drilling services, including the equipment and personnel for operations, to our customers—the oil and gas companies throughout the world. We have a long-standing reputation for safety and for being able to manage and deliver on extraordinarily complex offshore drilling projects in challenging environments. Our vision is to be universally recognized for innovation and excellence in unlocking the world’s offshore resources.”

I think that the people they asked about safety can’t have been the US government, all the residents along the Mexican gulf including the local fishermen nor can they have asked all the scientists, experts or NGOs that have been involved in the clean-up.

This statement just shows displays the complete arrogance of Transocean and its executive board about the people they are affecting. In my mind (and I think in a lot of others) they should be sued until the end of days for what they have done.

Keeping your money safe

But luck-be-hold the board and executive committee have already taken this into account by proposing that shareholders should not be able to sue them for their activities in 2010. Or formulated as an agenda point it look like this:

“Agenda Item 2: Discharge of the Members of the Board of Directors and Executive Management from Liability for Activities during Fiscal Year 2010.

As is customary for Swiss corporations and in accordance with article 698, para. 2, item 5 of the Swiss Code of Obligations, shareholders are requested to discharge the members of the Board of Directors and our executive management from liability for their activities during fiscal year 2010.

The pending shareholder derivative claims allege the breach by our directors of their fiduciary duties based on allegations that our directors failed to monitor safety risks, including risks related to the Company’s blowout preventers, and made misleading statements regarding the Company’s safety risks, the safety of the blowout preventers, and the Company’s financial condition. In addition, other allegations have been made against us in investigations and other contexts that are publicly available and could form the basis of similar claims against our directors and executive management.”

So if any critical shareholder world be out there thinking about sue the company for its mismanagement and poor governance in 2010 then forget about it.

A final insult

These statements just underline the ethical perceptions that the top of the company has on all its stakeholders.

“We will never forget the brave crewmembers of the Deepwater Horizon, nor will we cease in our efforts to ensure such an incident never occurs again. The lingering pain of the Macondo tragedy reinforces our efforts to conduct operations in an incident-free environment, all the time, everywhere.” And “It remains our view that Transocean is contractually indemnified against all claims stemming from the environmental and economic impacts of the hydrocarbons spilled into the Gulf of Mexico from the Macondo well after the sinking of the Deepwater Horizon.”

I hereby nominate Transocean management and its executive board of directors as the unethical company of the year for their outstanding performance in avoiding all decency and totally ignoring, and disregarding their key stakeholders.

The WHY of women on boards

Should there or should their not be quotas for women on the board? It seems to be a ever present question for legislators around Europe and now it has surfaced again in the UK. Here a UK government-backed panel has investigated the role investors can play in boosting the number of women on company boards. The panel, headed by former Standard Chartered Chairman Lord Davies, has recommended that FTSE100 listed companies should be aiming for a minimum of 25% female board member representation by 2015 – although it stopped short of advocating strict quotas. However, they fail to answer a vital question that is essential for both the women and the organizations that they could be leading, namely – Why?

There is plenty of evidence to suggest what impact that gender have on organizations but it seems that this research is to a large extend ignored by organizational executive managers and governments alike. Normally we would like to think that our leaders are relative rational in their decision-making processes but it would seem that when it comes to gender it is all about how you feel.   

In my own research have looked into this subject and I have found plenty of evidence that would suggest that organization can benefit from taking a gender perspective on their performance. In this context they question of why it would seem to me is of the utmost importance.

So when the Financial Reporting Council is called upon to amend the Corporate Governance Code and to require listed companies to establish a policy concerning boardroom diversity it is more a “feel good” amendment than anything else. This is highlighted by the recommendation that firms should periodically advertise non-executive board positions to encourage greater diversity in applications again not confronting the ever present question of – Why?

The Davies report says that the “The Financial Reporting Council should amend the UK Corporate Governance Code to require listed companies to establish a policy concerning boardroom diversity, including measurable objectives for implementing the policy, and disclose annually a summary of the policy and the progress made in achieving the objectives” and that investors should pay close attention to its recommendations when considering re-appointments to a company board. “Investors play a critical role in engaging with company boards.” This would indicate that investors have a clear interest in more boardroom diversity but where is the evidence?

So because the board and executive managers can’t come up with any good reasons why women should be on the board we should leave it to activist shareholders to implement change? I don’t want to sound to bitter but it is a bleak picture that is being drawn out there and I know we can do better than this.

Furthermore the review states that “A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. Chairmen should disclose meaningful information about the company’s appointment process and how it addresses diversity in the company’s annual report including a description of the search and nominations process.” So now companies have to disclose meaningful information about themselves this is truly innovative and new (a hint of sarcasm can be inserted here). That they would even commit these words to papers seems beyond reason.

One good thing about the review is that it calls for full disclosure of the number of women on boards and in companies as a whole. This information can be used by researchers and opinion makers to move the debate from the arena of feelings and “feel good” statements to facts and science.