Gender Diversity at the Board Level Can Mean Innovation Success

As the economy continues to be reshaped by changing technologies, companies keep searching for ways to better integrate innovation into their strategy. No industry is immune to this need. One way to meet the challenge: focus on gender diversity on corporate boards.

Although evidence on the relationship between gender diversity on boards and financial performance is mixed, studies suggest that gender diversity can play an important role in supporting innovative activity and organizational change. For example, companies with greater gender diversity are associated with higher R&D intensity, obtain more patents, and report higher levels of overall innovation (particularly when there is a critical mass of women directors). This pattern is also reflected in external accolades; companies recognized as innovators have more women directors.

Our research on director recruitment patterns in over 60 countries found that initial investment in recruiting women directors creates positive feedback loops that pave the way for boards’ future diversity and capacity for supporting long-term innovation and creativity. We offer here a variety of suggestions for addressing the gender imbalance on corporate boards.

Gender Diversity on Boards Across the Globe

Despite the purported benefits of greater board diversity, women hold just 17% of board directorships in global companies in the MSCI ASWI Index, and 21% of board seats in the S&P 500. While the proportion of women directors is increasing, women remain the minority on most boards.

To better understand how boards might foster innovation by increasing director diversity, we conducted a global survey (in partnership with WomenCorporateDirectors Foundation, Spencer Stuart, and independent researcher Deborah Bell) that asked 5,000 board directors about their boards’ priorities, demographics, and recruitment patterns.

We found that directors on boards with greater gender diversity were more likely to prioritize innovation and technology. Our survey showed that 32% of directors on boards that included at least three women rated innovation as one of the top three strategic challenges companies face, versus 26% of directors on boards with no women. Women directors were also more likely than men to rate technology as one of the top three most important expertise areas for board service (17% versus 14%).

Addressing gender imbalance on boards can prepare companies for innovation challenges. Finding effective solutions to increase gender diversity on boards means first understanding the origin of the issue — director recruitment. Our survey offers insights on the extent of the gender imbalance in director recruitment, why this imbalance persists, and what boards can do about it.

Gender Imbalance in Director Recruitment

We examined how many candidates were considered for boards’ most recent vacancies for each nonexecutive board seat. Among our survey respondents, the average number of candidates ranged from 1.9 in Japan, 3.4 in the United States, 4.7 in Germany, and up to 5.3 in Australia. The proportion of those candidates who were women also varied: from 22% in Japan to 39% in Australia.

In Japan, 74% of respondents reported considering no women candidates for their most recent open board seat, while 54% of respondents from Australia reported considering at least two women candidates for their most recent opening.

A first step toward diversity for many boards is to simply consider a larger number of candidates for each director search. (Nearly a third — 31% — of U.S. boards in our sample considered just a single candidate in their most recent search.)

Imbalance Is Especially Stark in Private Companies

While publicly traded companies face pressure from investors and proxy advisory firms, as well as scrutiny from advocacy groups, to increase gender diversity on boards, privately owned companies often slip under the radar. Compared with publicly traded companies in the U.S., private companies in our sample considered fewer candidates overall and a smaller proportion of women candidates to fill board seats (26% of candidates in private companies versus 31% of candidates in public companies). Still, 55% of private companies and 40% of public companies did not consider any women candidates at all when filling their most recent vacancy.

In the absence of quotas and external pressures that can catalyze director change and renewal, boards can consider adopting policies like tenure limits to ensure continual refreshment. They should be cognizant, however, of preserving the valuable knowledge held by longtime board members.

Gender Segregation in Recruiting Networks Reinforces Imbalance

Our survey indicates that men are typically better connected to the boards they join. For example, 31% of men appointed to boards, compared with 23% of women, knew the CEO prior to being appointed. Meanwhile, women were more likely to have joined the board through an executive search firm (36% of women directors versus 30% of men). As one director reported, “Men can do it through [their] network, [but] women need to prove ability through qualifications or experience.”

Perhaps the impact of networking isn’t surprising, given that women are underrepresented in executive management roles and that networks tend to fall along gender lines. We asked directors how many individuals in their networks were qualified to serve as directors and how many of those individuals were women. On average, women directors reported knowing 7.6 qualified women candidates, while men directors reported knowing 2.3 qualified women candidates.

Interestingly, women directors also reported spending more time developing their networks than men did (9.8 hours per week versus 8.8 hours per week, respectively). In the words of one director, “The path [to a board directorship] for a woman requires more work, because business networks at the board level are less available to women.”

Because women are more likely to have connections to qualified women candidates, boards without any women directors could be inclined to feel that few qualified women candidates are out there. Boards can expand their pool of candidates by partnering with membership organizations for women, connecting with professional and trade associations, consulting women colleagues for referrals or recommendations, and retaining an executive search firm, among other options.

Recruiting Women Directors Creates a Diversity Feedback Loop

The effects of homogenous or diverse networks manifest in boards’ recruitment patterns. Among U.S. public boards in our sample, those with more women directors tended to consider both a larger pool of candidates and a higher proportion of women candidates when filling vacancies. As the proportion of women directors already on the board increased, so did the number of women candidates on the short list.

At the other end of the distribution, boards without any women directors did not appear to be making targeted efforts to increase gender diversity. Among these, 81% failed to consider a single women candidate for their most recent board vacancy (compared with only 21% of boards with at least three women directors). Just 2% of all-male boards considered two or more women candidates for their last vacant seat (compared with 46% of boards with at least three women directors).

As one director said, “The process of attempting to join a board is not different for women and men, but the outcomes are different because of unconscious as well as conscious bias. In most cases, the desire to maintain the status quo in terms of board culture creates barriers for women.” Cultural inertia tends to impede male-dominated boards’ consideration of women candidates.

Focus on Concrete Solutions

To gauge sentiments in the boardroom toward increasing gender diversity, we asked a subset of directors to give the primary reason the proportion of women on their boards was not increasing. Among male directors, 35% cited a relative lack of access or contacts among qualified women to those with decision-making power on boards, and 26% cited a lack of qualified female candidates.

We asked women directors the same question. The most common reason (45%) they cited: Diversity was not a top priority in board recruiting.

Although men and women diverged in their explanations for the gender imbalance on boards, few believed boards were satisfied with their current level of director diversity. Rather than falling back on these explanations as excuses, boards should focus their attention on finding concrete solutions to the gender imbalance. One easy process adjustment: adopt a more proactive approach to board recruitment. Stay on the lookout for promising candidates, whether or not there is a current vacancy on the board.

The Path Forward

Prominent companies like Twitter and WeWork have faced fierce backlash for a lack of gender diversity on their boards ahead of initial public offerings. Even in the absence of public scrutiny, boards that don’t take gender diversity seriously may find themselves at a disadvantage in the face of ever-evolving technologies.

Boards looking to diversify their ranks and lay the foundation for innovation can start by recognizing the potential benefits of increasing board diversity and scrutinizing how they recruit new directors. Boards can adopt a more deliberate and purposeful recruitment process by considering a larger number of candidates and searching outside their usual networks. They can also periodically review the mix of skills and perspectives represented by their membership and address areas of weakness by targeting and recruiting individuals who fill those gaps.

It can be challenging for boards to take the first step toward increasing gender diversity, but early investments in recruiting women directors can have positive feedback effects. Efforts to increase gender diversity can promote boards’ capacity for supporting innovation and creativity in the long term.