1 Path to Better Boards in 2012

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Corporate America has plenty of areas that need improvement in 2012 and beyond. This past year, one weakness has gained more attention: how few women hold seats on companies' boards of directors. This problem has continued despite research showing that more female participation would make better, stronger boards, and subsequently boost shareholder value.

Better returns
As The Wall Street Journal recently reported, nonprofit research group Catalyst found that between 2004 and 2008, major companies with three or more female directors generated far better financial results than companies with boards populated entirely by men.

The companies with a heavier weighting of female directors outperformed those with male-only boards by 84% on return on sales, 60% for return on invested capital, and 46% for return on equity.

In early December, Catalyst reported that little has changed when it comes to board diversity. Women only hold 16% of the board seats at Fortune 500 companies.

The Journal highlighted companies such as Urban Outfitters (NAS: URBN) and Dollar General (NYS: DG) as lacking female directors, but clearly, many other corporations also deserve the criticism, given how few women figure prominently on corporate boards overall.

Better ways to search for candidates
One of the major defensive arguments regarding the absence of female directors is how difficult it is to find candidates with the proper talent and experience. However, several organizations are working to make the process easier -- and undermine that breezy excuse.

Partnership for New York City and Women's Forum of New York are compiling a database of qualified board candidates with important sponsors to vouch for their abilities. If you're doubtful, note that already, 31 CEOs have suggested 47 women as solid candidates. Next month, Women's Forum will offer the database to boards and search firms, free of charge.

In addition, last April, pension funds California Public Employees' Retirement System and California State Teachers' Retirement System announced plans to create a Diverse Director DataSource, which is intended to help boards find fresh talent for corporate boards. GovernanceMetrics International, formerly known as The Corporate Library, has been commissioned to help with the database.

Better state of being
GMI researcher and Forbes contributor Nathaniel Parish Flannery recently pinpointed Massachusetts as an interesting piece of the puzzle regarding gender diversity on corporate boards. Fortune 500 companies based in Massachusetts actually boast the highest percentage of women directors of any state, with a 20.6% rate.

GMI's data shows that of Massachusetts' 73 largest publicly traded companies, one out of five boast boards with 20% female participation. Well-known Massachusetts-based companies that lead in board diversity include Akamai (NAS: AKAM) , with four women on its board, and Staples (NAS: SPLS) , which boasts three. Boston Scientific (NAS: BSX) and iRobot (NAS: IRBT) also make the list, with at least two female directors.

Although Massachusetts has a place on the map for this distinction, Flannery pointed out that there's still room for plenty of progress; many smaller or lesser-known Massachusetts companies haven't shown the same openness to board diversity. For example, famous Massachusetts brewer Boston Beer (NYS: SAM) has no women on its board.

Better boards in 2012
Research shows that diverse viewpoints actually form more robust organizations, not to mention better predictive and problem-solving capabilities in groups. Women are just one underutilized asset in the formation of smarter boards, since American directors still tend toward homogenous and terribly incestuous groups of the exact same type of people.

We shareholders should pay close attention to whether corporate America -- particularly the companies we've invested in -- starts summoning the guts to add female perspective to more boards of directors. The ones that don't may not be able to outperform their peers in 2012 and beyond. 

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time this article was published Alyce Lomax owns shares of Urban Outfitters. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services have recommended buying shares of iRobot, Staples, and Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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