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Six-continent survey of board members says women help boards make better decisions

A study involving more than 100 male and female directors on boards around the globe, aimed at determining the relationship between board effectiveness and the contribution of women directors, has concluded that boards make better decisions when a healthy number of women sit at the table.

Cate Goethals, a University of Washington academic leader who conceived and co-authored the Better Boards Project, says there's a growing sense that the financial crisis of 2008 was in part the result of a sort of "group think" of public-company boards, which are inevitably composed mostly of men.

Goethals, who has created three programs at University of Washington's Foster School of Business to connect women leaders and global business, says that this emerging line of thinking has led to a growing focus on the composition of public-company boards, including legislative involvement in board makeup in some countries.

Goethals, who co-authored the Better Boards Project with Susan Bloch, a management consultant and author of books on management, noted as an example that Europe has seen requirements for quotas of female board members, including France where 40 percent of the directors of boards of certain types of public companies must be female.

"Even in countries like the United Kingdom, the U.S. and Canada where there are no legal requirements, more women are being appointed to boards than ever before," said Goethals.

The study sought to answer a series of questions, including do women contribute differently in the board room, how do they contribute to board effectiveness and why are the numbers of women on boards so low.  

Supporters of greater representation for women on boards of public companies do see improvement and cite several reasons for that.  

For instance, a number of interviewees noted that the presence of female directors has come to be increasingly viewed as a marker of a progressive, forward-looking board. What company wouldn't want that image?

And the report noted that generational shifts and the call for different types of experience are also changing the landscape. An example was the need for a more youthful perspective and savvy with social media and new technology becoming a particularly acute need.

What clearly was a knock on the prevalence of all-male boards was the basic agreement among interviewees that "women provide a much-needed safeguard against group think and rubber-stamping of policy, which continue to hinder board effectiveness."

But noting that women are still joining boards at a slow pace, the report suggested the way boards look at themselves is a key factor in that, including the practice of identifying potential new board members on the basis of "who do we know." Men generally know other male prospects.

Neil McReynolds, who has been in board leadership roles and consulted with CEOs and boards and also been involved in helping boards recruit new board members, says he thinks "a combination of factors" will be necessary to make a difference to bring more diversity to boards.

McReynolds says that he frankly finds it surprising the increase in the number of women on corporate boards has come as slowly as it has, "especially for those companies in consumer products and services where women make a large percentage of purchasing decisions.

"It's going to take investor pressure, outspoken CEO's, active support by executives and board members, and improving the pipeline by making it easy to identify qualified women directors," McReynolds said.

When asked about the ways their boards are seeking to improve, most directors said their boards were doing very little and cited "ineffectual board assessment practices and, to our surprise, an almost complete absence of reviews of the performance of individual directors," the report said.

In an area like Seattle where women business leaders and entrepreneurs have been a prominent part of the business community leadership and non-profit board landscape for years, men, and even some emerging women leaders, might find it difficult to accept that women have faced an uphill battle in getting board slots at public companies.

After all, we have Phyllis Campbell, regional head of JPMorgan Chase and former Washington president of U.S. Bank, currently a member of the board of Alaska Airlines who has served on three other major boards. And Judith Runstad and Deanna Oppenheimer come quickly to mind.  

Runstad is former co-managing partner of Seattle law firm Foster Pepper, a member of several public company boards and prominent in business locally since before Rotary permitted women members. And Oppenheimer, who left Seattle to become head of Barclay's operations in England and now back in Seattle. is a member of several boards nationally.

But Cate says it would be an indication of complacency for those in this area, particularly men, to assume we are somehow ahead of the game in terms of board opportunities for women.

"Washington state is pretty good, with about 20 percent of public company board positions being filled by women," she said. "but the technology industry is almost the reverse, with most boards composed entirely of men. Most are boys clubs, because venture capital firms like dealing with men."

And business prominence apparently doesn't necessarily convert to the kind of business networking that leads to being sought out for public-company board roles when mostly male boards sit around and ponder who should join them.

One who is seeking to change the networking challenge is Janis Machala, an entrepreneur, involved early in the formation of the Seattle's women's angel group called the Seraphs, and in recent years in academic efforts relating to entrepreneurism.

She is setting up a women's CEO roundtable in the Seattle area to boost networking opportunities for female top executives. Presumably, one of the goal is to help each other become more generally visible in the business community.

As Machala puts it, "they need to learn to be the external face for the company."

Susan Preston, a Seattle attorney who actually launched the Seraphs as the first female angel group in the country back in 1999 and has been a entrepreneur in residence for the entrepreneur focused Kauffman Foundation, is in the process of creating an angel fund, which would provide women investors networking opportunity with angel peers.

Machala and others have been circulating the Better Boards report, hoping it will start what she calls "more conscious decisions about board composition" adding, "what's needed is advocacy or women and other diverse populations and not just referrals or board member talks about this."

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Reading an old Dan Evans speech stirs a sense that change isn't always improvement

Occasionally we run across something from yesterday that causes a sense that change isn't necessarily always for the better. And perhaps nowhere is that more true than in the political realm.

 

That thought occurred to me a few days ago when I had the opportunity to read a speech by former Governor and U.S. Senator Dan Evans to the January 1995 Economic Forecast conference in Seattle.

 

It was the day after Republicans, as a result of the transformational election of 1994, assumed control of both houses of Congress for the first time in 40 years and, with three dozen new GOP legislators, the state House in Olympia.

 

Evans, who himself had bucked a Democratic landslide in 1964 to win the first of his three terms as governor, referred, at the opening of that speech, to "day two of a new era," then joked, "Or is it the Newt era?" That was a reference, of course, to the new House Speaker Newt Gingrich, who had orchestrated the overwhelming takeover of the House of Representatives by Republicans.

 

I got a copy of the speech from Neil McReynolds, then a top executive at the old Puget Sound Power & Light Co., and chair of the board of the Economic Development Council of Seattle and King County, which put on the event at which Evans was keynoter.

 

McReynolds, who had been Evans' press secretary in Olympia when he and I met in the late '60s, is constantly running across decades-old documents in his files and, finding this one while we were visiting, he thought I might find the speech interesting.

 

Politics has provided several swings since that Evans' speech when Republicans were coming to power halfway through Bill Clinton's first term. But maybe the swings, either to the left or right, haven't always made things better.

 

What I found most interesting in reading Evans' talk was the reminder of him as an elected official who was impossible to pigeonhole ideologically. As governor and later as U.S. senator, he avoided ideological rigidity and found good ideas might sometimes spring from the Democrat side of the political aisle. And that dumb ideas could sometimes be offered by his fellow Republicans.

 

Thus at a time when polarized political positions characterize decision-making, reflecting on Evans, and actually many who were like him, including Washington's late Democratic Sen. Henry M. Jackson, make it obvious that politics doesn't have to require ideological polarization.

 

Before outlining in that speech a series of ideas "to propel Seattle and King County into world-class economic status," Evans blasted "talk show hosts screeching about waste in government," proponents of term limits and a balanced-budget amendment, environmental extremists, and excessive regulations that stymie growth.

 

And he also took to task the nature of campaigning. So in what could be a comment about the unfolding 2012 election rather than a reflection on 1994, Evans noted "We have just concluded the nastiest election in my memory. Virtually all campaign advertising was enormously distorted and negative."

 

"By constantly trashing our political leaders, we also breed disrespect for our own system, of government," Evans said. "The result is a new political landscape dotted with constitutional amendments and initiatives designed to protect citizens from 'evil' politicians."

 

Of two ideas whose proponents have continued to seek traction since that "new era" that Evans referred to as dawning, he told that 1995 business audience: "The balanced budget amendment is a loony idea that is meaningless until we decide how to keep a national standard set of books so we can measure balance."

 

And of the idea of term limits, Evans offered: "As a voter I am outraged by those sanctimonious term limiters who would steal from me the freedom of my vote."

 

But in addition to hitting "those talk show hosts who cater to the base emotion of people," he took to task "the politicians who blithely promise what they know they cannot deliver," and "those rigid environmentalists who will see you in court if they don't get all they seek."

 

Thus he has always been a leader in what I and many feel is an unfortunately disappearing breed, those who view ideas on their merits rather than insisting that any new idea must be vetted based on where it fits ideologically.

 

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Support grows for proposals to create jobs by easing some of investor protections

The mounting pressure on Congress and the Obama Administration to find some job-creating ideas to jumpstart the ailing economy is stirring growing interest in a couple of Congressional proposals that would lessen investor protections for the sake of allowing businesses more growth opportunities.

 

One proposal, already filed as a House bill by Rep. Ben Quayle, R-AZ, with the intent of accelerating the growth of younger companies, would suspend for most newly public companies what many view as a costly and troublesome provision of the Sarbanes-Oxley Act.

 

Quayle's proposal would allow a much greater number of public companies to opt out of Sarbanes Oxley Section 404, which requires public companies to disclose the scope and adequacy of their internal-controls structure. The measure would raise the current $75 million market-value threshold for reporting to $1 billion.

 

The other proposal would help entrepreneurial and start-up companies, many currently  hamstrung in their ability to attract growth capital, to reach large numbers of investors for limited amounts of money via the internet in what's being called crowd-fund investing.

 

The proposals have come to center stage only in the last couple of weeks. And each has attracted growing support from those who contend the measures are vital to the goal of job creation. And each is also starting to stir opposition from those who question the idea of setting aside shareholder and investor protections.

 

Each proposal merits an in-depth look and thus in this first of two columns we'll examine the discussions surrounding Quayle's bill, the support being gathered for it and the comments of those expressing concerns.

 

Next week's column will focus on the crowd-funding proposal, including a look at those backing it and the concern it is stirring from many angel-investor leaders, particularly those up and down the West Coast.

 

Quayle's bill would allow public companies with market valuations below $1 billion to opt out of Sarbanes-Oxley Section 404 for the first 10 years after going public. The original Sarbanes-Oxley Act was amended in last year's Dodd-Frank Wall Street Protection and Consumer Protection Act to create the under-$75 million exemption.

 

Quayle and supporters of his measure, including the entrepreneur-focused Kauffman Foundation, contend that the costs for complying with the requirements of this section of Sarbanes-Oxley can exceed $1 million for new companies and can cost them up to $20 million in loss of valuation.

 

Quayle's measure is close to a plan outlined by the Kauffman Foundation a few months ago as "a set of non-partisan ideas to jump-start the ailing U.S. economy and increase job creation by accelerating the growth of startups and young businesses."

 

Kauffman, the nation's largest non-profit foundation focused on entrepreneurs, noted that the role high-growth startups play is vital to assure U.S. economic strength.

 

"Virtually all of the growth in U.S. jobs has been driven by the formation of firms less than five years old, and these new firms have been disproportionately responsible for commercializing the cutting-edge innovations that characterize modern life," the Foundation said.

 

"I believe this bill is an important step as we  try to increase the number of companies that go public in the United States," said Robert Litan, Kauffman's vice president for research and policy. "The ability to raise capital in public markets will be essential as new companies create the jobs required to put Americans back to work."

 

One of the most pervasively visible proponents of both lowering the regulatory barriers for newly public companies and the proposal for crowd-fund investing is a Miami, FL, entrepreneur named Sherwood Neise, who has testified before Congress about both. He was co-founder of a company called Flavorx, which added flavors to medicine, that went public and was later sold.

 

In 2006, he was among those decrying what he called the "unintended consequences of Sarbanes-Oxley on small businesses," saying that meeting 404's requirements "ate up 14 percent of our net income."

 

But among those urging caution is former SEC Chief Accountant Lynn E. Turner, who said in an e-mail that contained the subject line "Short Memories:" "Clearly people have forgotten the hundreds of billions in dollars of losses investors suffered during the corporate financial reporting frauds, and the tens of thousands of jobs lost."

 

Neil McReynolds, a corporate-governance consultant in Seattle, said that while the original Sarbanes-Oxley requirements created some real cost and regulatory problems for smaller public companies, the changes brought about by the Dodd-Frank bill corrected some of those.

 

McReynolds, who has been a member of a number of boards of private companies and consulted with boards of public companies, said that while extending the exemption to $75 million cap companies, as Dodd-Frank did, made sense, "extending the exemption to $1 billion companies may be a bit of a stretch." He added that "there's still value in disclosure and internal controls."

 

Sharon Philpott, managing partner of national accounting firm BDO's Seattle practice, agreed, saying her firm supports the positions of the CFA Institute, Center for Quality Audit and the Council of Institutional Investors, who have all urged caution against further exemptions from Sarbanes-Oxley.

 

In the end, success or failure of expanding the exemption for internal controls may hinge on whether the pressure for jobs trumps the pressure to protect shareholders and investors.

 

 

 

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