Do It For The Right Reasons: Boards With More Women Grant Higher CEO Pay

Gretchen Morgenson’s “Fair Game” column in the Sunday New York Times Business section is a must read for CEOs, their teams and all investors. Gretchen is known for uncovering discrepancies, inequities, and potentially illegal maneuvers in the corporate world. The headline on this particular column, “Where More Women Are on Boards, Executive Pay Is Higher,” really grabbed my attention. My first thought was, this is a win-win. You get more women on boards and CEOs will be more highly compensated.

Alas, first thoughts are not always what they seem. As I dove deeper into Gretchen’s article, she pointed out several issues that countered my initial excitement.

The most disturbing notion was what may be behind the number: pressure women feel to avoid upsetting anyone in the boardroom. In the column, Nell Minow, a corporate finance expert, said executives are “looking for a consensus builder in a director. What that means is someone who doesn’t rock the boat.”

I was disappointed to learn that women in the boardroom are caving to the consensus; after all, the consensus may be wrong, or it may not be what is best for the company or its shareholders. In her column, Gretchen talks about how this may be the result of the hard road these women had to travel simply to get on a board. Even though they are often extremely successful and accustomed to speaking their minds, now that they’ve made it to the boardroom, they are not willing to go against the CEO for fear of losing their seat.

This attitude seems to fly in the face of the intent for diversity and inclusion. Yes, you need a consensus to move forward and get things done, but if you rely solely on a CEO and his or (in the rare case) her consensus-building directors, you will lose the statistically proven profitability benefit of a diverse board. You want a diverse board so you’ll hear perspectives you haven’t considered, not just so it can tell you what you want to hear.

Companies can remedy or alleviate this issue by implementing onboarding procedures that include discussions of the best practices for broaching opinions or ideas that differ from the CEO’s. Input on this can come from the CEO, board members and an outside vendor. Onboarding procedures should also include, in writing, the philosophy and values of the company. CEOs who embrace diversity in their corporate culture will have an easier time in allowing for differing opinions on their board. In the end, they’ll also have a more profitable company.

That’s because, after all, having diverse boards and workforces really do lead to better financial performance, and it’s got nothing to do with sycophantic behavior. See this Wall Street Journal article about how companies with more women and minorities in the upper ranks tend to turn in better financial performance, and this Yahoo Finance article about a study showing that companies with women on their boards outperformed those who only have men on their boards.

Smart CEOs don’t just want a rubber stamp. They want someone to give them honest answers. In the words of University of Notre Dame researcher Craig Crossland, management professor at the Mendoza College of Business: “Diverse groups tend to engage in discussions that are more thorough, more contentious and more likely to identify problems with the topic at hand.” CEOs need that frank and open dialogue, which will lead to better decisions.

Add women, people of color and LGBTQ community members to your board and encourage their divergent ideas, and you will make more money — not only for you, but for everyone in your company.

Kim Clancy is founder and CEO of search firm Hampton O’Bannon Partners, LLC (HOP, LLC). She helps technology companies attract and hire women and minorities to their boards.

LinkedIn : http://www.linkedin.com/in/kimclancy

Email : Kim@hopllc.com