Would more women on boards lead to less excessive salaries?
British Prime Minister David Cameron called this week for more women in corporate boardrooms to break up a 'closed circle" in which men give each other high pay.
After weeks on the streets worldwide, the “Occupy” protesters – with their focus on corporate “greed” – may have achieved one thing so far.
In Britain, they likely pushed the Conservative prime minister to propose more women be placed on governing boards of financial firms as a way to reduce high salaries and bonuses.
Companies with more female directors, said David Cameron, would be less likely to practice “the usual sort of rotating list of men patting each other’s backs and increasing the level of remuneration.”
A corporation’s methods of setting executive pay, he told Parliament Wednesday, should not be done by a “closed circle of people.” Women would bring more diverse views and a wider discussion of what is excessive pay.
He’s just guessing, of course, based simply on gender stereotypes. Women executives, in general, do ask less often for pay raises than men. But whether female board members would spread profits more evenly to company stakeholders remains unproven.
Other ideas may work better. Mr. Cameron, like many others, suggests companies release information on pay levels and give shareholders more authority over pay. Similar structural reforms would shake up corporate practices that have led to high income inequality. And attracting more women to boards will require more of them to earn MBAs and enter the business of high finance.
The task of defining “excessive” pay is difficult, but since the near-meltdown of Wall Street in 2008, it’s become a controversial topic. It would be less difficult with more transparency and accountability about a company’s compensation decisions.
Given the long history of pay discrimination, women serving on boards would bring a needed perspective on fair pay. Europe is already moving toward more women in the boardroom. In 2003, Norway began the trend by setting a quota of 40 percent for female directors and has already achieved it. While such a forced method may satisfy some, based on one study, the results were not so satisfying.
A University of Michigan study this year found an average 20 percent drop in the stock prices of Norwegian companies that brought in relatively inexperienced women as board members. “The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less capable boards,” the study found.
That negative experience may change over time as more experienced women join boards. Britain is avoiding a strict quota system in favor of voluntary targets. Last February, the government asked the boards of the top 100 companies to be 25 percent female by 2015. So far, progress has been slow, with only a slight rise to 14 percent from 12.5 percent last year.
“Everyone, whether they are in public life or in private enterprise – they have got to be able to justify the decisions they make about pay,” says Cameron.
Perhaps reducing male “group think” in boardrooms about pay levels is one good start.