The pace at which women are invited into the city's boardrooms and executive suites remains sluggish at best. Until that changes, corporate Chicago is denying itself the talent pool it needs to compete effectively, role models who can lure and retain the best employees and the informed judgment that comes only from the airing of diverse perspectives.
My empirical research, conducted over nine years of bull and bear markets, strongly suggests that companies that groom women leaders are better governed and reward shareholders with better financial returns.
Yet, in 2006, Chicago's 50 biggest companies actually saw a decline in the number of women directors and top executives, according to an annual census by Chicago Network, an organization of professional women. In the past year, the number of women directors fell to 13.8%, and women execs to 14.6%, each a drop of about 1%. Thirty-seven of Chicago's 50 largest corporations had no women among their highest earners, up from 35 a year earlier.
Chicago is not unique. Catalyst, a women's advocacy group that tracks women executives in the Fortune 500, recently reported that most large U.S. corporations have made little progress in advancing women to leadership positions over the last 10 years. Yet, paradoxically, global executive search firm Spencer Stuart surveyed S&P 500 companies late last year and concluded that interest in recruiting more women directors remains strong.
Enlightened corporate decisionmakers understand that gender diversity is good business: A 2004 Catalyst study of Fortune 500 companies found that those with the highest percentages of women officers yielded, on average, a 35.1% higher return on equity and a 34% higher total return to shareholders than those with the lowest percentages of women officers.
However, since 2002, the Sarbanes-Oxley Act has mandated board independence and oversight, requiring greater time commitments from directors and increasing the responsibility borne by the directors. This has led many CEOs to reduce the number of boards on which they serve and has implicitly encouraged companies to attract new board members among retired CEOs, who can more easily take on the time commitment but whose ranks are dominated by men.
Chicago's corporate leaders should insist that qualified women advance in their organizations. They should never settle for tokenism. They should evaluate transparently the performance and leadership potential of women employees and promote from within. They should cast a wide net, recruiting talented women in other regions and industries, in the non-profit community and academia. And they should appoint women to audit, compensation and governance committees of the board. Demanding diverse slates and diverse outcomes will drive shareholder value.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
Marc J. Lane is a Chicago-based business and tax attorney and financial adviser.
Reprinted from Marc Lane's February 3, 2007 editorial which appeared in Crain's Chicago Business. Crain Communication Inc.'s permission is gratefully acknowledged. Copyright © 2014 by Crain’s Communications Inc.
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