Malaysia

Why the U.S. lags Europe (and others) on board diversity

January 4, 2013: 12:04 PM ET

The U.S. has a business culture that doesn't like top-down mandates or term limits, yet evidence suggests that businesses with more diverse boards perform better. What to do?

European Commission vice president Vivienne Redding

European Commission vice president Viviane Redding

FORTUNE – Compared to many countries, the United States is progressive in terms of women's rights. But when it comes to pushing businesses to increase their ranks of female leaders, European and Asian nations leave the U.S. in the dust.

On December 12, European Commission vice president Viviane Redding announced a newly launched list compiled by European business schools that contained the names of 8,000 board-ready women. It is, she said, "the answer to all the naysayers" who claim that a lack of qualified women is a reasonable counter-argument to a law she is advocating that would require that women make up 40% of the board members of European companies by 2020.

The EU is more aggressive about getting women on boards than the United States. Norway was the first country to introduce gender quotas for boards back in 2008. Since then, other European countries have followed suit. According to a 2011 Deloitte report called "Women in the boardroom: a global perspective," Belgium, Italy, and France have taken official actions to put more women in the boardroom.

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Europe is not the only region whooping the U.S. on this front. Some emerging markets are outpacing the United States' gender parity efforts too. In 2011, Malaysia's cabinet approved a law championed by the prime minister that said that in the next five years, companies listed in Malaysia must have boards that are at least one-third female. Companies that don't comply risk being de-listed.

We can't do that at home. "In the U.S., we don't cotton well to quotas," says Donna Hamlin, CEO of management consulting firm Intrabond Capital. Besides, she says, unlike some European countries, the United States doesn't have term limits for board members, making it harder to bring in fresh, female faces even when a company sees that as a good management strategy.

According to a 2012 Credit Suisse report called "Gender diversity and corporate performance," the presence of female leaders is a viable indicator of a company's investment potential.  "In testing the performance of 2,360 companies globally over the last six years, our analysis shows that it would on average have been better to have invested in corporates with women on their management boards than in those without."

That puts open-minded American managers in a tough spot. The U.S. has a business culture that doesn't like top-down mandates or term limits, yet evidence suggests that businesses with more diverse boards perform better, and more diverse boards generally include more women. What to do?

The first step is to acknowledge that free-market talent searches probably won't result in gender parity on boards any time soon. American business has been a (primarily white) man's game for a long time. Leaders looking for talent diversity may have to look outside established networking channels.

One place to look is the list of 8,000 board-ready women mentioned above. "I know the women, I know how talented they are," Redding said. "And I have no doubt that when [boards] go for talent and not the old men networks, than certainly, the women will make it to the top."

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Leaders at companies will also have to help get qualified women there, either by mentoring women on the management track, or training them to be good board members. In Malaysia, the government is helping to train capable women by offering official board preparation courses, Hamlin says. In the United States, women can take executive education courses at universities or companies like Intrabond. This is a necessary step, says Hamlin, even if it wasn't required of their male board member colleagues. "When you're trying to move a new group into the boardroom, you're overcompensating by the standards that are in the board already," she says.

While a traditional free-market attitude may not be enough to place women on boards, it will ultimately reward the companies with the best management strategies. Evidence is mounting that good management strategies include electing board members who can bring diverse experiences and ideas to the table.

"I don't know why we're sluggish," says Hamlin, "but if you start to see these … spunky countries get results, then there's no turning back because you say, 'they've done it. They've shown the world.'"

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