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Urban Outfitters Inc
Burger King Worldwide Inc
Cheesecake Factory Inc/The
Berkshire Hathaway Inc
Wal-Mart Stores Inc
Credit Suisse Group AG
If you’re baffled at why it’s proving so difficult to get women on corporate boards, you’re not alone. State treasurers are threatening to pull pension funds from laggard companies. Nine nations are enraged by a European Union plan to punish companies that don’t fill at least 40 percent of their board seats with women. The issue was debated on Sept. 13 at the Women’s Forum in New York, and it will get the spotlight again in Washington on Sept. 20 at the SAIS Global Conference on Women in the Boardroom.
Is this really such a hard problem to fix? These aren’t people you have to groom for years to fill the top ranks. You just have to ask someone. The risks are low. A bad executive hire can derail your business; a bad director just detracts from the value of the board. Plenty of smart women would love a chance to make almost a quarter of a million dollars for a few weeks of meaningful work with high-powered peers.
Yet here we are, in 2012, and only 16.1 percent of Fortune 500 directors are women. About 29 percent of U.S. companies have no women on their boards, according to GMI Ratings. Not one. Even such brands as Urban Outfitters (URBN), Burger King (BKW), and Cheesecake Factory (CAKE) seem unfazed about marketing to women under all-male boards. (None returned e-mails and calls for comment.)
What’s holding women back isn’t bias. It’s the fact that no one ever leaves the boards. Why should they? With median pay of $227,250 last year, according to Hay Group, boards offer lucrative and prestigious work. They give once-powerful players a chance to slow down and still stay relevant in retirement. As one ex-chief executive officer argues, it’s the last great job most of them will ever have. Only 291 new directors joined S&P 500 index boards during this year’s proxy season, according to Spencer Stuart. A decade ago, the number was 401. At the same time, the average director’s age has risen to 62.6, from 60.1. CEOs have to handle seismic shifts in their business with advisers whose kids don’t even get the fuss over Facebook (FB).
The best tool to keep boards vibrant is one most boards don’t want: term limits. Six-year limits have allowed the U.K. to catapult ahead of the U.S. in gender diversity, with FTSE 100 companies raising the percentage of women directors to 17.3 percent this year, from 12.5 percent two years ago. The results don’t stem from quotas, but from greater opportunities to bring in talent. Only 4 percent of S&P 500 companies now have term limits, notes Spencer Stuart’s Julie Daum, and those terms tend to be in the 10- to 15-year range. Meanwhile, U.S. companies that bother to set a fixed retirement age for directors have consistently been raising it—to the point at which 72 or older is now the norm. “This isn’t just about women,” says Daum, who heads up the search firm’s North American Board Services practice. “It’s about keeping board rooms current.”
These aren’t token jobs. Directors have had a hand in everything from succession at Berkshire Hathaway (BRK/B) to how allegations of bribery were handled at Walmart (WMT). They decide how much a CEO is paid and when it’s time for him or her to leave. They’re accountable for how a company is run—and a recent Credit Suisse (CS) study found that companies run better when there’s at least one woman on the board. They end up with higher profits, stronger stocks, and fewer dumb deals.
At current turnover rates, U.S. boards get about one shot every two years to bring in an expert on global business, social media, finance, or regulatory trends—never mind in a form that can come to board dinners in a black dress. As boards become more ossified, the demands on them increase. They’re more visible, more accountable, and more vulnerable to shareholder demands.
With all that to worry about, who needs the added pressure of finding a woman during the biennial quest to fill a single seat? Why tap some unpredictable player if your top priority is to keep yourself on the board? Some investors may moan, but they’re impotent to do much unless they buy enough shares to take over a board themselves.
Mandatory term limits enforce a discipline that most boards can’t embrace for themselves. Staggered terms could allow the companies to maintain the right mix of experience and new skills while forcing more regular discussion of gaps that need filling. High-performing directors will find homes on new boards while the duds can be edged out with their dignity intact. Does that mean people might leave before their value is diminished or dementia sets in? Sure. Most democracies have learned to cope with that reality in public life, as have many boards that ask CEOs to step down at 65.
Gray-haired, clubby boards can be a big drag on companies because they’re less likely to rein in the excesses of management. U.S. regulators have forced boards to become more independent. But that’s a tough thing to define when someone has spent decades on the same board. Howard E. Cox Jr. became an independent director at Stryker (SYK) in 1974. That’s 38 years of being paid to give firm, objective guidance and keep watch for investors while a modest, family-owned manufacturer in Kalamazoo, Mich., morphed into a $8.3 billion global technology giant. As Cox has presided over growth, he’s also been on a board that came under scrutiny over how it has paid directors, timed stock-option rewards, and forced out former CEO Stephen MacMillan. (Neither Cox nor Stryker media contact Jo Johnson responded to requests for comment.)
Getting more women onto boards is tough enough, given the wish list for new directors. It becomes a Herculean task when there are so few vacancies to fill. Whether the EU gets its quotas or not, nobody’s going to stoke populist rage for a cause that enriches a wealthy few. Most investors care only when a board is hurting the bottom line. Yet companies that compete with a board full of old, white men not only look clueless these days, they often are clueless. All the more reason to take diversity out of the hands of directors who’d love to linger for decades. Limit their stints so boards have to look elsewhere for new faces. Only then are they likely to discover talented women with the skills they really need.