Critical Mass on Corporate Boards:
Why Three or More Women Enhance
Governance
Executive Summary
Vicki W. Kramer
V. Kramer & Associates
Alison M. Konrad
Richard Ivey School of Business
University of Western Ontario
Sumru Erkut
Wellesley Centers for Women
2006
© 2006 Kramer, V. W., Konrad, A. M., Erkut, S.
This project was made possible through funding from the Valentine Foundation, the TIAA-CREF
Institute, the Hess Foundation, a challenge grant from the Phoebe Haas Charitable Trust ‘A,’ and
from individual contributors.
Copies of the full report can be ordered from the Wellesley Centers for Women’s Publications Office
(781 283-2510) and also at its website at http:/ / www.wewonline.org / pubs/ title. php?id=487.
RLIT0000339
RLIT0000339
RLIT0000339
RLIT0000339
Critical Mass on Corporate Boards: Why Three or More Women Enhance
Governance
Executive Summary
Corporate governance reform has been a hot topic for a number of years. Congress, the
Securities and Exchange Commission, the media, and large shareholders have been
pressuring corporations to improve their governance. In the face of the public failure of
companies such as Enron and WorldCom, some boards have been accused of being
asleep or at least acquiescent, often focusing on short-term earnings and permitting
runaway CEO compensation. While many companies are demanding more competent
directors, the traditional pool of directors is no longer adequate to meet the need for
independent, outside board members required by Sarbanes-Oxley and other reform
guidelines — particularly since CEOs are limiting the number of boards on which they
serve. Nominating committees and search firms are enlarging the scope of their search for
qualified directors and dipping into new pools of candidates, including women. Yet some
of the largest companies still have no women directors, and of those that do, only a small
percentage have more than two women directors. The most recent Catalyst report (2005
Catalyst Census of Women Board Directors of the Fortune 500) indicated that women
held only 14.7 percent of all /'ortune 500 board seats. Among the Fortune 500
companies, 53 still had no women on their boards, 182 had one woman, 189 had two, and
only 76 had three or more women directors.
Does it matter to corporate governance whether women serve on a board? If so, does it
make a difference how many women serve? Is there a critical mass that can bring
significant change to the boardroom and improve corporate governance?
Based on interviews and discussions with 50 women directors, 12 CEOs, and seven
corporate secretaries from Fortune 1000 companies, we show that a critical mass of three
or more women can cause a fundamental change in the boardroom and enhance corporate
governance.
Our study extends current research and writing on corporate governance, particularly
work that draws attention to the importance of boardroom behavior and dynamics. In
addition to employing critical mass theory, we build on research on minority and majority
influence on group decision-making as well as tokenism theories.
Women Directors Make a Difference
We find that women do make a difference in the boardroom. Women bring a
collaborative leadership style that benefits boardroom dynamics by increasing the amount
of listening, social support, and win-win problem-solving. Although women are often
collaborative leaders, they do not shy away from controversial issues. Many of our
informants believe that women are more likely than men to ask tough questions and
demand direct and detailed answers. Women also bring new issues and perspectives to
RLIT0000339
RLIT0000339
the table, broadening the content of boardroom discussions to include the perspectives of
multiple stakeholders. Women of color add perspectives that broaden boardroom
discussions even further.
How Many Women Constitute a Critical Mass on a Corporate Board?
The number of women on a board makes a difference. While a lone woman can and often
does make substantial contributions, and two women are generally more powerful than
one, increasing the number of women to three or more enhances the likelihood that
women’s voices and ideas are heard and that boardroom dynamics change substantially.
Women who have served alone and those who have observed the situation report
experiences of lone women not being listened to, being excluded from socializing and
even from some decision-making discussions, being made to feel their views represent a
“woman’s point of view,” and being subject to inappropriate behaviors that indicate male
directors notice their gender more than their individual contributions.
Adding a second woman clearly helps. When two women sit on a board, they tend to feel
more comfortable than one does alone. Each woman can assure that the other is heard,
not always by agreeing with her, but rather, by picking up on the topics she raises and
encouraging the group to process them fully. Two women together can develop strategies
for raising difficult and controversial issues in a way that makes other board members
pay attention. But with two women, women and men are still aware of gender in ways
that can keep the women from working together as effectively as they might, and the men
from benefiting from their contributions.
The magic seems to occur when three or more women serve on a board together.
Suddenly having women in the room becomes a normal state of affairs. No longer does
any one woman represent the “woman’s point of view,” because the women express
different views and often disagree with each other. Women start being treated as
individuals with different personalities, styles, and interests. Women’s tendencies to be
more collaborative but also to be more active in asking questions and raising different
issues start to become the boardroom norm. We find that having three or more women on
a board can create a critical mass where women are no longer seen as outsiders and are
able to influence the content and process of board discussions more substantially.
Impact on Corporate Governance
Having a critical mass of women directors is good for corporate governance in at least
three ways.
© The content of boardroom discussion is more likely to include the perspectives of the
multiple stakeholders who affect and are affected by company performance, not only
shareholders but also employees, customers, suppliers, and the community at large.
Difficult issues and problems are considerably less likely to be ignored or brushed
aside, which results in better decision-making.
The boardroom dynamic is more open and collaborative, which helps management hear
the board’s concerns and take them to heart without defensiveness.
RLIT0000339
RLIT0000339
This paper has important implications for improving corporate governance. It shows that
diversity is an issue of governance and that increasing the representation of women on
every board is a good governance issue. It also supports the value of moving beyond
CEOs, who still tend to be white males, when looking for board candidates. And it shows
that simply putting one woman on a board does not necessarily permit that board to
benefit fully from gender diversity.
Finding Qualified Women
Are there enough qualified women available to substantially increase the representation
of women on Fortune 1000 boards without sacrificing the quality of decision-making? If
being a Fortune 1000 CEO is a prime qualification — as it has been often in the past — the
answer is No, because few Fortune 1000 companies are led by women. But being a CEO
isn’t critical for all board members. In fact, many white men on these boards don’t meet
that qualification.
Although our respondents consider it important to have some CEOs on a board, they see
no reason why all board members must be CEOs and some good reasons why not all
members should be CEOs. Indeed, because women tend to bring new perspectives, a new
and desirable leadership style, and a willingness to tackle tough issues, they arguably
have more of what it takes to contribute to boards than some CEOs, whom our
respondents see as having more narrow views and sometimes being more willing to
smooth-over tough issues than to process them fully. Male CEOs looking for board
candidates may still be drawn to men with whom they are comfortable and with whom
they socialize, but some CEOs themselves recognize that that is not necessarily good for
corporate governance.
Our respondents were adamant that women should not be brought on as tokens simply
because they are women. To serve boards well, women need high-level corporate
experience or the knowledge, skills, and abilities needed to contribute to board
discussions. Although boards may have to reach a bit deeper into the senior-management
ranks to find more women, women who have succeeded in business careers in corporate
America are eminently qualified to contribute to these boards — as are successful women
entrepreneurs, lawyers, nonprofit executives, consultants, and academics.
To improve board governance, our research shows that boards should actively seek
qualified women board members and not be satisfied with just one or two women on their
boards. Nominating committees should nof try to be “gender-blind.” Rather they should
consider increasing the number of women an important part of their role and should insist
that search firms bring them diverse slates of candidates that always include qualified
women. Since corporations say they value “outside the box” thinking, they need to look
outside the box to recruit women, who bring a new perspective and style that enhances
the quality of discussions in the boardroom.