Ideas for Leaders #104

Financial Literacy to Get Women on Board

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Key Concept

What competencies must be displayed by individuals aiming for board-level positions? Traditionally, the answer to this question would include things like knowledge, motivation and networks. While those are certainly still relevant, new research suggests a finance qualification, or background in finance, is also a key influence — especially when the candidate in question is female.

Idea Summary

Following the economic and financial crises that began in 2008, corporate governance has been more of a management concern than ever before. Boards of directors and their compositions have gained particular focus. Though they have been traditionally dominated by males, many reports have stressed the need for and benefits associated with having more female representation on boards. The tide is slowly changing and during 2011–12 there was a 5% increase in females appointed to FTSE 100 boards. But what talented women eager to excel in their careers want to know is how to become part of that figure.

New evidence suggests that companies may be more inclined to appoint a woman to a board position if she has a financial background or financial qualification. In a report commissioned by the ACCA (Association of Chartered Certified Accountants) and ESCR (Economic and Social Research Council), 47 new female board appointments were examined and a series of in-depth interviews undertaken, which found that the majority — 57% — of the new members had finance backgrounds. Does this suggest that women fluent in finance are at a distinct advantage when applying for board positions?

Cranfield School of Management’s Dr Ruth Sealy points out that a certain level of financial acumen is necessary for all board directors. “But for women,” she says, “having a finance qualification or functional background helps to break down some persistent stereotypes about their competence, giving them credibility, legitimacy and a common language that allows them to join the conversation of the boards.”

From the data collected on the list of FTSE 100 companies, 45% of female executive directors were in finance roles and 65% came from a finance background, compared with 26% and 45% of males, respectively. Women appeared to be under-represented in non-finance function executive director roles.

The qualifications included the following:

  • 301 board directors were indicated as holding a professional accountancy qualification
  • 227 recorded a professional qualification in the form of a MBA
  • 29 directorships were held by those with both MBA and accountancy qualifications

Of course, financial literacy is only one part of an overall constellation of important skills; women also need to be motivated, driven, determined and ‘known’ (e.g. register on the radar of executive search firms).

Business Application

For women that aspire to join a board, these findings suggest they should work on developing their CVs to include experience in finance and/or a financial qualification. This could be in the form of a relevant executive education course or, as co-author Dr Noeleen Doherty suggests, “availing opportunities in roles that signal financial acumen or financial literacy, such as P&L (profit and loss) experience.”

These findings also signal something to corporations and executive search consultants: be conscious and aware of the potential bias prevalent towards females from a finance background. “Perhaps be clear and establish what is meant by, and what constitutes ‘financial literacy’”, suggests Doherty.

Moreover, characteristics associated with careers in finance, such as lack of excessive travel, the ability to return to these roles easily after breaks, etc., may be a factor in why women successfully sustain finance roles. These insights should be applied to other functions as well, so that more of the talented executives in non-finance roles are brought under the spotlight when searching for new board members.

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Authors

Institutions

Source

Idea conceived

  • 2012

Idea posted

  • March 2013

DOI number

10.13007/104

Subject

Real Time Analytics