Why We Need More Female CEOs (and How to Make It Happen)

It's a matter of economic as much as moral responsibility

Female CEOs deliver better returns for investors. It’s true — and the statistics back me up.

women-ceos-quotas-lean-inFortune analyzed data from Factset Research Systems and found that female CEOs in the Fortune 1000 delivered an average return of 103.4% during their tenures versus 69.5% for the S&P 500 over the same period. Yet, promotions to the top job continue to go predominately to men.

Sure there has been progress: A decade ago, only eight women held the top job in a Fortune 500 company compared to 24 today. But we’re talking about 24 people out of 500. Women represent almost half the work force; those numbers should be much higher.

About a month ago I highlighted The 4 Best Female CEOs to Bet On. It was meant to point out that women deserve to play a bigger role in the boardrooms of corporate America not just because it’s the right thing to do — but because it’s the smart thing to do.

If public companies can’t get their act together, perhaps it’s time to institute quotas as they have in Norway, Spain, Finland, Israel and several other countries. The Women’s Forum met in Brussels in late January to discuss possible solutions to bridge the gender gap. One of those solutions is to support the European Union’s “Woman on Boards” proposal which calls for a 40% quota for women directors in all 5,000 listed companies by 2020.

It all sounds very progressive, but….

Unfortunately, it really doesn’t solve the overarching problem of the lack of women at the top of the corporate ladder. A recent study published by the National Bureau of Economic Research found that the Norwegian reform did little for women in business beyond helping a few more women get board gigs. Case in point — the Wall Street Journal ran an article in May that suggests only 3% of 145 Nordic large-cap companies have a female CEO. Actions speak louder than words.

In that article, CEO Petra Einarsson welcomes quotas at the bottom of the corporate ladder where more women gaining entry-level positions would translate into more success in the C-Suite. It’s a nice thought, but the cynic in me believes nothing would change when it comes to promotions. Men would still see the lion’s share of career advancement.

Perhaps it’s too early in the game, but it appears that board quotas doesn’t translate into a greater number of female CEOs. Leena Linnainmaa, deputy chief executive of the Finland Chamber of Commerce has this to say on the subject: “You often hear the argument that more women on a company board will automatically lead to more women executives. But this has no significance what so ever.”

I’m afraid she’s right. Unless more women actually make it into the C-suite or are at least banging on the door, it won’t matter if the average board is 50% women. Men will still get the top job. That’s the world we live in.

But it doesn’t have to be that way.

Russia, which can hardly be confused for a tolerant society, has women filling 43% of senior management jobs in the country. It seems the former Soviet Union was very progressive when it came to promoting women through the ranks. Equally impressive statistics are found in many of the neighboring Baltic States that were once under its influence. Even China, which often gets a bad rap for civil rights abuses, is doing more for the career advancement of women than in the United States. Women in BRICS countries (Brazil, Russia, India, China and South Africa) represent 30% of senior management positions, eight percentage points higher than in the U.S. In a word — pathetic.

So, are quotas the answer to get more female CEOs?

If you’re going to have quotas, I think they’ve got to be instituted all the way along the corporate ladder from top to bottom. You constantly need to be replenishing the talent pool. That way, if women choose to take leave to have and raise children, there are plenty of candidates to fill the void while they’re away. And you’re ensuring that women are getting opportunities throughout the company — not just at certain levels.

But you can’t just have quotas. Companies must do everything in their power to ensure a work-life balance that allows women to succeed in their jobs while also managing their family. Google’s (GOOG) great at providing all the perks necessary so employees can stay at work longer, but if they don’t engage their people in a meaningful way eventually those employees — female or male — are going to check out.

To me, this issue is so simple.

Companies that have more women on their boards deliver better results. So, if you’re an investor in a company that has no women on its board, wouldn’t you want to nominate a few qualified candidates that just happen to be female? Even if it’s for the sole reason that this leads to more money in your pocket down the road? If you believe in capitalism, it follows that you should support a more balanced playing field where female CEOs are commonplace because it’s in your best economic interest.

Women aren’t asking for special treatment; they simply want equal treatment — whether it’s the number of women serving on boards, the percentage of female CEOs in the Fortune 1000 or the number of entry-level jobs up for grabs. And while we’re at it, let’s not forget similar pay for similar work. Representation by population extends beyond politics and into corporate America.

At the end of the day, quotas aren’t necessarily the best solution … but if men won’t make the appropriate changes on their own, perhaps government intervention is the swiftest way to give women better opportunities in the workplace and help companies deliver better value to investors.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2014/07/female-ceos-quotas-answer/.

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