Gender Diversity – a Need for Some Radical New Thinking

NY1In the past 12 months we have been mining ASX data for trends and insights. The gender diversity movement has been generous in their support in promulgating the new trends and insights we have discovered that support a strong business case for greater diversity in mainstream business leadership. In our blog posts we have regularly argued for a ‘Social Capital’ solution to the clear gender imbalance on ASX and world wide, boards of management . As we release our end of year 2012 results we have to admit some disquiet in the results. Improved gender diversity results are only largely identifiable at the very top of the ASX, and even then, continued growth in women on boards is far from guaranteed. Of the 3,096 new faces on ASX boards for 2012 only 7.74% were woman. The Mining & Metals dominated the ASX and produced 40% of those new faces of which only 4% were women. The 40% female participation target regularly promoted to achieve a satisfactory level of gender equity appears a distant pipe dream.

No doubt a radical step change is required to even approach gender equality objectives in any reasonable time frame, if at all. The call for quotas has been seen as the only mechanism for achieving a radical change toward gender equality. We beg to differ. For many mainstream business owners, gender quotas are considered restrictive, rather than expansionary. Radical change, facilitated by changing regulations, can happen with unbelievable speed, if they are seen as removing, rather than installing, restrictive practices. For example, the rapid adoption of the Internet came about through the removal of US military restrictions on the use of the underlying networking infrastructure that underpins it. The fall of communism also happened at an astounding rate once key restrictions were removed. The same can be said for apartheid in South Africa, so significant change can occur at astounding speed if the conditions are right. Restrictive regulation associated with gender quotas would regrettably be seen as a business overhead and therefore is unlikely to achieve the radical changes sought.

Radical market place change can also occur at astounding speed when the ‘right’ conditions are met. These right conditions typically call for a dormant ‘pent up demand’ for which the right product just happens to come along at the right time. The ‘smart phone’ is the most recent example of this. Steve Jobs and Apple did not invent the first smart phone, there had been many less successful attempts before hand. What Apple did better than any others is to understand the technological ecosystem that needed to be harnessed to successfully meet the pent up demand for the device we now know as the smart phone. Successfully bridging the different digital media sector players for music, video, social networking and mainstream news was arguably as important, as the underlying technology in the ultimate success of the iphone/ipad. The radical change to the way we communicate using smart phone technology is every much a radical change as is being sought for gender equality on boards of management.

 So the big question is: What are the ‘right’ conditions required for gender equality to go viral?

 Being a Tipping Point

NY2There is a common perception that the %women on boards would increase linearly over time until the percentage reached a ‘magic’ point where the percentage would accelerate past this ‘tipping point’. We don’t see any evidence of this pattern playing out in reality. That is not to say that a tipping point cannot be achieved at some time in the future though, given the ‘right’ conditions. A good source for identifying the ‘right’ conditions is Malcolm Gladwell’s book “The Tipping Point”. In this book Gladwell looked to identify what the ‘right’ conditions were for indicating a tipping point for the adoption of something radically new. We summarise his findings and offer an assessment of the current status quo for board gender equality:

The Law of a Few – meaning that the bulk of the influence is in the hands of just a few i.e. the existence of Mavens, Connectors and Salespeople for the cause. The Mavens are the respected opinion leaders, the powerful advocates. There are many powerful advocates for gender equality, so we can probably tick this one off. The connectors are those well-connected individuals who can successfully bridge the stakeholder islands in the same way that Steve Jobs did for Apple. For the gender equality cause this is partially met. No doubt there are still several stakeholder islands that have yet to be breached on gender equality on boards. In terms of a focused and skilled salesforce, we might count on professional groups like Women on Boards (WOB) to fill this role, but perhaps WOB is more of a rallying community of advocates, than a skilled sales force? This is a gap that can be filled over time.

 Verdict: Potential

 Stickiness – is the degree to which the change becomes memorable and able to influence future behaviour. This can be easy to judge in hindsight e.g. the Internet, the Smart Phone, Democracy etc.. How will a world where boards of management are staffed equally by men and women become memorable? Has the compelling story been written or told yet? We don’t think so. We think there is an opportunity for the advocates to ‘paint the memorable picture’; something that skilled sales people do exceptionally well e.g. Steve Jobs, Richard Branson, Jack Welch.

 Verdict: Not Yet

 The Power of Context – is about socialisation and plays to our prior promotion of the impact of social capital. “Going Viral” requires a social context where behaviour is influenced by your social peers, being the people you take most notice of. The speed of the contagion is directly related to the strength of the social network that it targets. To date, gender equality on boards has not achieved sufficient social capital to go viral. Advocates are still in tightly clustered cliques with limited penetration into the mainstream islands of opinion that constitutes ‘big business’. The Norway case study for regulatory intervention is now over-used and insufficiently compelling as a business case. We wouldn’t be doing this post if the power of context was being met.

 Verdict: Not Yet

 Meeting ‘Pent-up Demand’

NY3Implicit in reaching the ‘Tipping Point’ is an unmet demand. For the Iphone/Smart Phone, this was a device that could successfully integrate the different media themes of music, video, news, social networking and personal computing that had stubbornly required the juggling of multiple devices. The rapid fall of Communism was driven by the sudden appreciation of communist country residents that western standards of living substantially exceeded their own. The removal of apartheid laws in South Africa was the trigger for radical changes virtually demanded by the western world. The removal on restrictions on Internet protocols in the 1990s opened the floodgates for global markets and global connectivity.

 So what ‘pent up’ demand in business will be met by gender equalisation on boards of management?

We took advantage of recently published new year predictions to scan what others felt were the biggest challenges and/or trends for business in 2013. As best we could, we looked to build some themes from these predictions to try and articulate what a ‘Pent-up demand’ might look like for solutions that might resolve these frustrations. The commentators ranged from respected business schools like Wharton, the National (USA) Federation of Independent Business, through to independent business columnists. We then were bold enough to assess to what degree gender equalisation might be considered to provide that solution.

As a general theme, the business uncertainty experienced since the 2008 global recession has generated a climate where business leaders are concentrating on the quality of their employees and customers. Building and retaining a highly skilled and engaged workforce and servicing a growing and loyal customer base have become key foci. Innovation in products, services and financing for growth was also regularly mentioned. The increased digitisation of the workplace provides both an opportunity for growth and business intelligence capability, but is balanced against increased risks in global supply chains, regulatory constraints, cyber-security and business continuity. In terms of leadership, in the words of Professor Mike Useem at the Wharton school; “Leaders must be able to act more quickly and decisively, even as it becomes tougher for them to know precisely what to do”.

We now look at each key theme, one at a time to provide our judgment on what the status quo may be:

1. Growing the business in an environment of business uncertainty and weak sales

In Australia the two dominant market sectors are Mining & Metals and Energy, where female representation is well below average. Selling in these industries is technical and industrial in nature and not the traditional domain for females. That said, selling coal and iron ore to the Chinese is as much about building long-term relationships, as it is technical. Fundamentally we want to know if women make better sales people than men? Tom Peters and Dave Kurlan think so, or at least believe that they have some fundamental innate capabilities that can lead them to outperform men in sales. Dan Pink in his recent book ‘To Sell is Human’, suggests the old, often male, stereotypes of the salesperson are now well out of date and that we all spend a substantial part of our working lives ‘selling’ something to others, whether they be traditional clients or people in your own organisation. That said, this list of ‘The 10 Greatest Salespeople of all Time’ contains just 2 women, which is about the status quo today.

Verdict: Potential

2. Creating new growth opportunities through new and innovative products and services. Continuous experimentation should be the norm.

Again when we think of organisations with an innovation track record there is a paucity of female role models at the big end of town. There is no shortage of female entrepreneurs in the small business sector, but few have been able to scale their ventures into larger listed companies, as evidenced by the low proportion (3.6%) of female directors for ASX debutant companies, which is only about half the overall ASX proportion.

Verdict: Not Really

3. Financing growth…looking for more innovative mechanisms now

The global financial crisis has resulted in less funds becoming available from traditional sources to fund business growth. Funding from cash flow is becoming more regular, though clearly limiting the speed with which growth can occur. Innovative financing mechanisms like crowd-funding and micro-financing are becoming a more popular source of funding, though clearly the overall investment levels are still relatively low. This is an area where females have demonstrated experience, more often as recipients, funding businesses that are shunned by the traditional banks and lending institutions. Perhaps the best example is the Grameen Bank making small loans to impoverished female run start-ups in Bangladesh.

 The banking and finance sector is one where female director participation is greatest (12%), and therefore provides some potential for making a difference.

 Verdict: Potential

4. Gaining, training and/or retaining high skilled staff; compensation/reward strategies, talent management, building team capacity

This HR challenge was the most pervasive of those mentioned. The HR function has become a female domain and is the function on leadership teams where females are best represented. Human Capital is being nominated as the most critical asset in the uncertain business environments we now face. And at least one Forbes blogger believes that 2013 will be the year that HR goes ‘Social’ . This is the one challenge where female participation and contributions are currently acknowledged at all levels of business.

Verdict: Definitely

5. Employee Engagement – being motivated to work productively; workspace innovation; more freedom and fun at work

NY4One of the key findings of the 2009 Deloitte Big Shift Report was that only 18% were passionate about their jobs . This was seen as a major lost productivity opportunity, especially in these more austere times. This challenge is another that is ‘people centred’ and an opportunity for women to make a difference. If we look at today’s traditional workplaces, they have largely been designed for and by working males. Only in recent times have workplace practices been adapted to accommodate childcare or other carer responsibilities, that require more flexible work hours, and have tended to impact  women to a larger degree. Traditional workplace environments are only now starting to break out of the industrial model, where worker passion for the job was neither sought nor expected.

Employee engagement is definitely an area where females could excel. Female leadership styles are acknowledged as more people empathetic, inclusive, and therefore well suited to this challenge.

Verdict: Potential

6. Overcoming the impediments of increased regulation

One of the unfortunate consequences of the 2008 global financial crisis is increased regulation. Several commentators mentioned the dampening effect increased regulations was having on business growth, with a few mentioning the cancelling of projects resulting.

Expeditious navigation of complex regulations suggests the need for a strong legal and commercial competence. According to this article in the Wall Street Journal,  female law graduates are now roughly matching men. However, as with the the general workplace, this has not translated into women occupying postions of influence and visibility in any great number, with just 15% females making equity partner in law firms in the USA.

 Verdict: Not Really

7. Customer experience and loyalty; developing trust with customers

Do female led businesses develop more return customers than male led firms? We don’t have any data on that, but anecdotally the strong socialisation skills of women, especially with other women might suggest that there is potential here. Also a strong presence in the consumer/retail markets might suggest a natural strength in designing for a superior customer experience.

 Verdict: Potential

8. Business intelligence through data (big data)

The increased digitisation of business has naturally led to a flood of data available for mining business intelligence from. Previously the domain of large firms with strong data processing capabilities, data mining has now been brought down to the consumer level, where virtually anyone with a web site or web presence can obtain web analytics, much of it for free. Separating out the intelligence ‘nuggets’ however is not straightforward and still remains in the domain of the analytical ‘geeks’. ‘Geekdom’ is not an area heavily populated with women, despite some attempts to rally those that like science and analysis.

Verdict: Not Really

9. Business Risks – Supply Chain; Globalisation, Information Security

NY5The current uncertain global business environment brings with it an increased level of business risk. Some of the common areas mentioned were supply chains where many participants are less secure than in the past. We have seen evidence of this with some high profile failures of automotive component suppliers, no doubt under increased pricing pressures. Globalisation was brought both new opportunity but also new risks as companies are forced to work under legal and commercial regimes that they are less familiar with. Digitisation has also brought with it increased risks of fraud, or with the advent of ‘cloud based’ information storage infrastructure, the potential loss of critical business information.

Astute risk management requires strong commercial, legal and technical capabilities. Are women in general more risk averse than men? Well the answer may not be definitive but the evidence points to the affirmative . It is generally accepted that men love to compete more and will take greater risks to prove superiority. But risk aversion is not the same as risk management, however in today’s climate, a bit a risk aversion is probably a good thing.

Verdict: Potential

10. Leading decisively under uncertainty

Posed by the Wharton school, this challenge relates to the ability of a leader to consistently make the ‘right’ calls in uncertain environments. We would suggest that in uncertain environments there is always an element of luck and therefore we suggest it is impossible to be right all the time. We prefer to think of this challenge being satisfied if your ‘right’ calls significantly outweigh the wrong calls. For example, Steve Jobs is credited with making some significant ‘right’ calls on Apple products during his extended tenure in, an industry awash with uncertainty. But he also made some significant ‘wrong’ calls e.g. Apple III, Next Computer, Atom, which are now largely forgotten. Other long term CEOs in volatile market sectors could also fit this bill e.g. Bill Gates, Larry Ellison, Richard Branson, Jack Welch to mention just a few. ‘Best CEO’ lists regularly show very few women (1 – 3%) , with one publication noting that a drop in the share price regularly accompanies the announcement of a new female CEO!

We believe that this theme is the most nebulous to judge. While the CEO rightly will take accountability for the end result of the decisions that the organisation takes, how these judgments are made are far from transparent. Tom Albanese recently stood down from the leadership of Rio Tinto after a string of disastrous acquisitions. How much were these decisions a function of poor ‘organisational judgment’, rather than wholly poor judgment on Albanese’s part? If it’s the former, perhaps his leaving will have little impact? Our penchant for attaching hero status to CEOs and assigning either accolades and/or banishment, according to the judgments they preside over, is perhaps masking the organisational processes that underpin these judgments?

 ‘Organisational judgment’ is an area only lightly studied when compared with the literature on personal judgment. A recent book “Judgment Calls” by Tom Davenport and Brook Manville looks to help fill this gap. They tell 12 stories about organisations that have demonstrated superior organisational judgment. A key theme extracted was the inclusive nature of the leadership. Far from taking an “I’m the Boss so I need to make the calls” perspective, the leaders of these organisations were much more inclusive and transparent about their decision-making. They looked to draw opinions and take advice from the most diverse sources, rather than to rely on a selected inner circle. Evidence based decision-making and the use of analytics also often played a part in their judgements. We think that the Rio Tinto shareholders would be much more assured of a better future if they could better understand how the firm will make decisions and judgments in the future, rather than who will occupy the top seat.

On the basis of these findings alone and a view that female management styles tend to be more inclusive and considerate of diversity, we believe there is potential for women to change the way organisational judgments are seen to be made, despite the paucity of current role models.

 Verdict: Potential

 Final Score?

NY6Well overall the picture is not pretty (like last years statistics), but hopefully this different type of analysis provides some more specific actions that can be undertaken to improve the situation and hopefully move toward that sought-after tipping point.

In terms of the Tipping point analysis:

  • More professional selling – there are no shortage of advocates but perhaps the injection of a few industry hardened sales people can help the cause.
  • Developing a compelling story that wins both hearts and minds. Perhaps one that plays to the natural human capital management strengths that females are most adept and managing.
  • Network your way to the ‘islands of doubt’. To dat the influence network tends to be limited to particular industry sectors. Make a point of winning over the key influencers in the Mining & Metals and Energy sectors (at least in Australia).

In terms of servicing ‘pent-up demand’:

Definitely = 1; Potential = 6; Not Really = 3

  • Play to the strength of human resource management. Human Capital is being seen as the key asset in the current and foreseeable uncertain business environment. Lobby for ‘Human Capital’ director representatives on all boards and aim to dominate this role. Once there, the potential exists to expand beyond the role.
  • Back this up by building and highlighting capabilities in the more human centred challenges like employee engagement, customer experience and loyalty as well as promoting innovative financing mechanisms. Demonstrating more transparent and inclusive decision-making is also likely to be well received by shareholders. 
  • In the short term promote natural risk adverseness as a positive quality for firms looking to survive the current economic environment.
  • For the challenges assessed as ‘Not Really’, more fundamental changes are required. The fact that the largest industry sectors tend not to be popular amongst women is a major impediment that can only be changed by a gradual re-education and promotion of role models. Progress needs to be made but there are no quick fixes here.

Perhaps we are still a little away from the ‘Tipping Point’ for gender equalisation on boards. While we have provided 10 themes of pent-up business demand it could be that meeting just one could be enough to trigger the tipping point. We can therefore be encouraged by the speed with which change can happen once the conditions are met.

In closing we would like to share a comment made to us by board adviser Tim Boyle from Blackhall Pearl: “…the problem is that skills are taken as a proxy for value of the director, which is erroneous. Directors are hired by skill but remembered and valued for judgment. 10-15 years mining or chemical or banking experience doesn’t give you judgment it gives you 10-15 years working in an area. So perhaps we need a new criteria or method of selecting directors which could in turn lead to hiring more female directors that add value”.

We are also interested in your own views. In looking to take a radical alternate view on gender diversity issues we know we will attract many supporters but also will have alieniated many others. We expect many of you won’t agree with our judgements of the status quo. Lets hear your thoughts. The power is always in the conversation.

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