Boardroom Gap: Financial & cultural pressures creating more gender diversity

ILLUSTRATION/LAURA MAROTTA

Patricia Flynn

State Treasurer Deborah Goldberg

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By Grant Welker

In 2011, when Susan West Engelkemeyer became the second female president in the 203-year history of Nichols College, every administrator who reported to her was a man. For the Dudley college that was all-male until 1974, it was a remnant of a past era.

It quickly changed.

“It wasn't that we will only hire women, but we made sure that in the candidate pool, we always include female candidates and minority candidates,” Engelkemeyer said.

Now, three women are among the seven on Engelkemeyer's cabinet.

“We've added some remarkable women in recent years,” she said.

For a series begun Feb. 5, a Worcester Business Journal investigation into the gender makeup of the leadership of 75 organizations found women comprise 33 percent of senior executive and board seats locally, though that figure was skewed by a handful of social service nonprofits. At Central Mass. public companies, only 8 percent of top executives and 16 percent of board are women. Three companies hadn't had a female executive or board member in at least two decades, and 12 didn't have a single female executive last year.

But nationally and locally, business leadership is moving toward greater gender equality through legislative changes, new and long-time advocacy, investors pushing for the value diversity brings, and pressure for cultural changes stemming from the #MeToo movement.

“Customers, employees and investors are looking at the leadership of companies and noting the absence of women,” said Brande Stellings, senior vice president for advisory services at the national nonprofit women's advocate Catalyst, based out of Wall Street in New York City.

Financial pressures

Because companies with greater gender diversity in leadership have better performance records – a 2016 study by Swiss multinational financial institution Credit Suisse found companies with women in at least 15 percent of senior management positions have 18 percent more profits than companies where women comprise less than 10 percent of those seats – investment firms like State Street of Boston and BlackRock of New York are pushing their portfolio companies to add more women.

State Street wrote to companies it invests in last March saying it would vote against the chair of a company's nominating committee if there were no female directors or candidates for the board of directors.

BlackRock said its priorities this year will include working with companies to better understand their progress on improving gender balance in the boardroom. If companies don't make progress in a reasonable time frame, BlackRock said it would take unspecified action. BlackRock CEO Larry Fink pitched in his 2018 letter to executives the benefits a diverse board can bring.

In Massachusetts, the board overseeing the state government's $62-billion pension fund votes against or in abstention for board-member appointments at any of its 9,000 portfolio companies without at least 30 percent of their board members female or minorities.

Last year, 60 percent of the companies in the pension fund didn't meet that requirement.

The pension board's policy is largely symbolic – the fund has not divested from any of these companies – but it allows the fund to advocate for policies it believes foster better long-term growth and stability, said State Treasurer Deborah Goldberg, who chairs the pension board.

The treasurer's office also votes against companies who overboard – that is, they have directors who serve on four or more corporate boards – which can open up more board seats and ensure directors can properly devote themselves to the role.

Creating and advocating for female leaders

At Nichols College, Engelkemeyer helped start the Institute for Women's Leadership, which has a goal of empowering female students and those in business. The college has a goal of having women make up 45 percent of its student body within five years. It's now at about 30 percent.

At Worcester Polytechnic Institute, where in 2014 Laurie Leshin became the 153-year-old college's first female president, women have been appointed to a higher-than-average number of board and executive positions – 10 of 30 trustees and five of 12 administrators.

“I've accepted and owned the role model part of this,” Leshin said. “You can't be it if you can't see it, and you have to be able to see that it's possible.”

Progress is bound to take time. The majority of WPI's board of trustees is alumni, and the college didn't have its first female graduate until the 1970s. Leshin has instituted programs such as the Women's Impact Network, a mentoring and philanthropic group, and pushed for greater inclusion of female students that last fall brought WPI's highest-ever rate of women in the incoming freshmen class, at 44 percent.

The Boston Club, an advocacy group for women in business leadership positions, keeps a roster of qualified female potential board members for when companies need to find candidates.

“We're saying there are qualified women out there,” said Hilary Potts, who chairs the corporate board committee for The Boston Club. “Talk with them, and then make your decision.”

Narrowing the pay gap

As part of its study of 75 local organizations, WBJ examined the total compensation of 233 Central Massachusetts executives and found male executives made an average of $1.3 million, while women made about $573,000.

This Central Mass. pay gap was driven largely by men holding the overwhelming majority of the higher-paying positions at the higher-paying organizations, and not by men and women in similar roles being paid unevenly.

On July 1, Massachusetts will become the first state to prohibit employers from requesting salary histories from potential hirees, a law aimed at curbing the gender pay gap. This Equal Pay Law, approved by the state legislature in 2016, bars employers from asking job candidates about their pay history, in an attempt to cut down the pay gap.

State Sen. Pat Jehlen, the Cambridge Democrat who filed the bill, said she first tried similar legislation in 1999, but never had enough support from other legislators and faced a pushback from industry groups.

“People have told us it has made a difference in the past, that it's affected their pay,” Jehlen said.

Starting this month, the Massachusetts treasurer's office will hold salary negotiation training programs for women at each of the state's 15 community colleges, a first-of-its-kind program meant to help women overcome wage inequality.

“This is a family issue. It's an economic issue,” Goldberg said, adding that women who make less are likely to have less saved for retirement, even though they typically live longer than men.

Cultural changes

The national #MeToo started after allegations of rampant sexual harassment by powerful men in Hollywood, Washington, D.C. and elsewhere has exposed cultural problems created by male-only company leadership and called for business leaders to be held more accountable.

Tim Van Dyck, an employment attorney for Worcester law firm Bowditch & Dewey, has advised clients to include clauses in executives' employment contracts saying sexual harassment or retaliation are for-cause causes for termination; to use claw-back clauses for stock options for those found to have engaged in sexual harassment; and to insert clauses requiring any executive to pay a judgment in a harassment case, and not the company, as is traditionally the case.

“These types of clauses are particularly important now,” Van Dyck said.

Cutting down on workplace harassment will help women and companies, said Evelyn Murphy, a co-chair of the Boston Women's Workforce Council, which is working to close the wage gap. When women are harassed, Murphy said, they may sue or walk away from the company. In either case, such instances can often hurt their salaries.

“In a very profound way, it will help reduce the pay gap,” Murphy said.

Yet, despite all the national calls for workplace culture improvements, Van Dyck said not many companies have put anti-harassment clauses in place yet. He has conducted harassment training for companies and found high-level executives will still sit out such classes.

“That, to me, sets the tone for the rest of the organization,” Van Dyck said.

Disclosures, term limits, mandated quotas

Slow progress is frustrating, said Patricia Flynn, an economics and management professor at Bentley University who has closely studied gender diversity. Businesses will say they would add women to their boards if they had a vacancy – but then fill vacancies with men anyway, saying they can't find qualified female candidates.

“We just turn around and say, 'Where have you looked?'” Flynn said. “They're just asking the people in the room. That's no longer viable.”

The Boston Club has advocated for a greater amount of disclosure in companies' proxy statements to more clearly show where diversity exists. Others support going in that direction, too. Several large pension fund managers and 15 of 19 major corporations interviewed for a 2015 U.S. Government Accountability Office report said they supported more disclosure on board diversity, and all who expressed an opinion on board search processes said they supported broader searches beyond just CEOs in order to help find more women.

Yet, the GAO found no appetite for another Boston Club recommendation: Instituting term or age limits to open up more board seats. A similar survey conducted last year by the Boston executive consulting firm Spencer Stuart found 3 percent of S&P 500 companies said their boards were considering term limits.

Public companies are required to have women in 40 percent or more of their board members in Denmark, Iceland, France, Norway and Spain, according to New York City research firm MSCI. The threshold is at least 30 percent in Belgium, Germany, Italy, Malaysia and the Netherlands.

The U.S. has no such requirements, and in the GAO study, 16 of the 19 major corporations said they did not support government quotas on board diversity.

Yet, the GAO report gave reason for optimism. Although women made up 16 percent of board members on S&P 1500 companies, they make up 23 percent of new board members. Among the largest public companies, those on the S&P 500, 36 percent of new directors are women, according to Spencer Stuart.

At the current rates, the GAO report estimated the gender gap on boards will be erased by around 2065.