Michelle Edkins is a Managing Director at BlackRock and Global Head of its Investment Stewardship team of 22 specialists based in five key regions globally.  Michelle’s main responsibility is overseeing the team’s engagement on corporate governance, including environmental and social factors, with the companies in which BlackRock invests on behalf of clients. She also serves on the firm’s Global Operating, Human Capital and Government Relations Steering Committees. She was named in the NACD Directorship 100 Governance Professionals list the past four years. Amongst other external commitments she serves on the Advisory Council of the International Integrated Reporting Council. She is a Steering Committee member of the U.S. 30% Club, a business-led initiative to accelerate progress towards gender balance at all levels of leadership, and spearheads its investor group.

Christopher P. Skroupa: How is board diversity—in particular women on boards—an investment issue?

Michelle Edkins: There is plenty of evidence showing that diverse groups make better decisions. The most important role of the board is to make decisions, therefore it makes sense to have directors with diverse perspectives in the boardroom. Diversity is measured by several parameters: various backgrounds, different styles of leadership, diverse professional experience and, at the crux, different life experiences. Broadly speaking, life experience is clearly influenced by one’s gender and ethnicity. Diversity at the most senior levels of a company also relates to the so-called war for talent. Increasingly, the top talent that companies are trying to attract and retain are diverse. For them to identify with a company and believe that there is a career path for them, to the most senior levels, they need to see diverse leaders—not necessarily people diverse in the same way as they are—but at least some leaders who differ to the dominant profile. It is evident, companies that can attract, retain and engage the best people outperform over time. BlackRock’s Investment Stewardship team is focused on assessing the quality of leadership and management at companies as we believe that is closely tied to delivering long-term shareholder returns. In engaging on these issues we are helping meet our fiduciary duty to protect and enhance the value of our clients’ assets. We regularly engage companies on diversity at board and C-suite levels to take the steps to develop a diverse leadership pipeline.

Skroupa: Should the U.S. introduce a quota for women on boards?

Edkins: It frustrates those who have been working to increase board diversity in the U.S. that, despite their efforts, the percentage of women on boards has stubbornly hovered in the teens—now 19%—across large public companies. The U.S. Government Accountability Office reported last year that at the current rate of change, it will take decades for us to achieve anything close to parity. Obviously something has to give. In other markets diversity on boards has increased dramatically in recent years. This shift is either in response to a quota or because of the threat of a quota at the market-level. That said, a major issue in regard to quotas is, that once established, they often become a ceiling rather than a floor, which allows for complacency. It is perfectly conceivable that selecting only the best candidates for a board might result in 80% of the seats being filled by women (although we’re a ways off that yet!). In the U.S. there is no credible threat of a quota—who would be in a position to introduce one? In my view, establishing quotas in the U.S. is not something we should be working toward, or even discussing. A lot of energy would be exhausted trying to achieve something that is unachievable. Instead we should focus on practitioner-led initiatives. We can encourage better gender balance on boards and in senior management ranks by supporting investor and advocacy group-led initiatives, such as the Thirty Percent Coalition and chairmen or company-led initiatives such as the 30% Club. Through engagement, debate and practitioner interaction, proponents of greater diversity can influence those who are yet to be convinced and move practice forward.

Skroupa: What obstacles are faced to get more women on boards? What can investors and companies do to address these obstacles?

Edkins: One major obstacle is the perception that board-ready women are in short supply. This perception is often informed by boards setting very constrained requirements for the profile of director candidates. If it is a necessary requirement that candidates are current or recently retired CEOs then yes, there is a supply issue. However, most boards have at least a few directors who were not formerly CEOs but have the requisite capabilities and experience to contribute. Directors can come from an array of backgrounds: advisory, investment banking, accounting, and industry operations, amongst others. If you limit the definition of what makes a good director strictly to those with CEO experience, you’re unnecessarily whittling down the pool. Not all CEOs are going to be good directors. Naturally, boards can be risk averse as to who they bring in, given that most directors will serve on the board for eight or more years. It is important that all boards make a commitment to expand the pool of directors through developing first-time directors. In some people’s minds, though, if you are taking a risk on someone who has never been a director before, a woman is twice the risk. Yet, every single male director had to first be a first time director at some stage, by definition. You’re not born a director. This is going to be a long process, due to most board’s slow turnover rate. Board refreshment, which regularly brings new directors on board to ensure sound succession planning, and board evaluation, which ensure that the directors on the board are still the best candidates given the company’s strategy and future direction, are increasingly a focus for investors as part of a broader assessment of board effectiveness. A deliberate effort to broaden the pool of directors and potential candidates is essential to ensure high performing boards in the future. Another contributing factor to the slow pace of change is that many board roles are still filled through incumbent directors’ networks. Candidate short-lists drawn from professional networks are not necessarily a bad thing if the appointment process is robust. However, women and men often network in different hemispheres, which means there is not always great visibility into the pool of board-ready women. Current and aspiring directors of both genders need to be deliberate about meeting and building continuing connections with peers they don’t already know and ensure they are developing a network of both men and women.

Skroupa: You mentioned the 30% Club, how does this business-led initiative move things forward?

Edkins: By way of background, the 30% Club in the U.K. was established when the U.K. government indicated an introduction of a quota for women on boards if companies didn’t improve the situation within a few years. From 2011 to 2015, the proportion of women directors in the U.K.’s largest companies went from 12.5% to 26.1%, demonstrating that the corporate community will act when there is a clear and common objective. The premise of the 30% Club is that those best placed to bring about change in boardrooms are already sitting at the board table. There are fewer obstacles to bring change from within rather than from outside interests, whether government, investors or advocacy groups, who force it. Board chairs signing up to the 30% Club commit to increase the number of women on the boards over which they have influence. That concept has been broadened to include CEOs, this would encourage the development of more diverse talent pipelines and educational outreach to drive concerted action from school rooms to boardrooms. In the U.S., the 30% Club launched in 2014 and is aiming to achieve 30% women on S&P 500 company boards by 2020. It creates a new playing field for chairmen and other business leaders to network and engage in peer-to-peer discussion on diversity and inclusion, creating a unique channel for sharing experiences around innovation and change leadership in this area.

Skroupa: How will you know when the 30% Club has been successful?

Edkins: We will know it has been successful when we don’t need it anymore, when everyone says “haven’t there always been boards where, say, 60% of the directors are women?” Before this is achieved, there is a lot of work to do and I expect the 30% Club, and similar initiatives, will flex and refocus its priorities as we make progress. For instance, it will always be beneficial to have mentoring and sponsorship programs to help those underrepresented in senior professional ranks achieve business leadership roles. Regardless of gender, many senior executives who aspire to be directors will get there more quickly if there are formal mechanisms to help them develop the unique skills that make them “board-ready.”  There is plenty to be done to promote business in schools, so students understand their potential for a rewarding and impactful career. The key to success is that companies have the diverse and engaged workforce necessary to achieve long-term, sustainable financial performance in a rapidly changing economic and societal landscape.