Startups Promote Female Employees in Rush to Get Women on Boards

(Bloomberg) -- In a rush to get more women on boards, startups are promoting from within — a move, governance experts say, results in less independent and less effective directors. 

Over the last five years, much like public companies in the U.S., startups have improved gender diversity on corporate boards. But while doing so, they’ve increasingly turned to female employees, data from JPMorgan Chase & Co. and PitchBook released Monday finds. This year, over 50% of new female board members came from within their own company. Male employees are also making up more of new board appointments, though to a lesser extent. 

The phenomenon, the report warns, “does not provide true governance nor the fresh perspective an independent director could bring.” 

Startups are increasingly diversifying their boards before going public in order to meet new regulations, such as those created by California state law, that require public companies to have female and other underrepresented directors. In 2017, only six startups went public with female board members who had been appointed in the prior two years, the JPMorgan and PitchBook report found. As of August, 59 startups that went public this year had added women to their boards ahead of their IPOs.

Critics of gender and racial quotas on boards say they lower standards for new directors. Research has found women appointed to boards have more financial expertise, and recruiters say they haven't had a hard time finding qualified candidates. 

“I’ve seen companies scramble to fill out their boards prior to an IPO,” said Lauren Kolodny, founding partner at Acrew Capital, a venture capital firm. “And while it’s possible to do that, particularly if you’re a hot company, there’s value in building your board bench from the early days.” 

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