The corporate boardrooms of the largest companies hold enormous influence and have more financial power than governments of many developing countries. The 500 largest corporations in the world represent nearly one third of the global GDP. However, less than 6.7 percent of board chairs globally were women in 2021 and only a quarter of Fortune 500 board members were women. A lack of female representation and leadership in the main decision-making bodies of the private sector is detrimental to efforts to reduce gender inequality and close the gender wage gap. The World Bank states that due to gender inequality in lifetime earnings, the world is losing US$160 trillion in wealth which is nearly twice the global GDP. But there are clear steps governments and the private sector can take to achieve gender parity on boards, which can help boost company value and performance.
Gender disparity in the boardroom
Although these gender disparities exist in boardrooms globally, they also can vary depending on where the company is based. For example, Europe has the highest representation of women on boards at 35 percent, while the Middle East has one of the lowest with only 10 percent of seats held by women, according to Deloitte. Globally, publicly listed companies have a better representation of women on boards (19.7 percent) when compared to US-venture backed private companies (7 percent).
Challenges for women
One of the most common paths to the boardroom is through the C-suite, but women’s representation at the executive level is very low. In the Middle East, for example, only 1.6 percent of CEOs are female while in Asia it is 4.1 percent and in Africa it is 7 percent. Board seats are often filled through networking that happens at the highest levels of the corporate sector, which is dominated by men and in some cases supported by religious or social norms. These biases overlook well-qualified women for executive-level and board positions and reinforce the status quo at the expense of better results and decision-making. Moreover, women tend to do at least two and a half times more unpaid care and domestic work than men giving them less time to network. Correcting discriminatory norms or favoritism of social groups is the first step going forward.
Why is gender parity needed on boards?
Studies show that an increase in women on boards improves a company’s value and performance. During the Covid-19 pandemic, companies that had more women on their boards outperformed their counterparts financially. Increasing diversity also leads to more innovation and smarter decision-making, according to Deloitte. There is a growing demand for inclusion among investors, with about 90 percent of executives stating that gender balance is important. Lastly, having more women in the boardroom can help encourage younger women to pursue leadership positions.
What is needed to close the boardroom gender gap?
- Gender equality at the management level
Many companies have achieved gender balance when looking at their whole workforce, but studies show that the percentage of women declines as the level of seniority gets higher. Only 21 percent of C-suite executives and 38 percent of managers are women. A report by McKinsey shows that the lack of women in senior management is due to gender disparities in promotion rates rather than in hiring. Gender disparities in who get promoted need to be assessed to understand the factors contributing to poor promotion rates and addressed through targeted interventions to create a gender balance at the management level.
- Investor pressure
Investors realize that gender equality on boards is not only the right thing to do, but it will also increase profits. For example, Blackrock, the world’s largest asset manager has diversity targets for boards in the United States and Goldman Sachs is refusing to work with all male boards.
- Executive training
With more companies increasing the number of women on their boards, many women are first timers. They should be given the opportunity to train in top schools and executive programs that target leaders and decision-makers.
- Merit-based assignments vs networking
All corporate board assignments should be made on a merit-basis, taking into consideration candidates’ track record and achievements. This approach helps reduce bias in board appointments that have been made in the past based on senior-level networking.
Governments and the private sector could play a greater role in closing gender parity
Governments should focus on policies to create a more friendly work environment for women leaders. Countries with quotas and regulations have achieved better gender parity on boards. Policies to remove gender bias at an early age in schools and an increase in access to STEM education are also needed. Governments could provide incentives for the private sector companies to encourage them hire more women leaders at decision-making levels. Private sector would benefit from providing leadership training programs for talented women staff and eliminate unfair competition in work environment.
The World Bank Group has been working with counterparts to address gender disparities on boards through its private sector arm, the International Finance Corporation (IFC). For example, an IFC program in Sri Lanka offers a platform for female board directors in the country to share industry expertise to help drive qualified and aspiring women become board directors. IFC's toolkit for ‘Women on Boards and in Business Leadership’ focuses on soft skills needed for board directors. This is expected to complement Sri Lanka Institute of Directors' Board Leadership Director Certification Program that will help build partnerships for aspiring women leaders. In Nepal, IFC is working with the Stock Exchange to foster gender diversity on corporate boards and in senior leadership.