Friday, January 27, 2006

Women-Owned Businesses -- Are We Making Progress?

The U.S. Census recently published its report on women-owned businesses from the 2002 Economic Survey. We should be pleased to hear that women-owned businesses increased 20% in absolute numbers during the 5 years between 1997 and 2002, twice the national average for all businesses. Revenue also was up 15% in the same period.

However, it is the averages that concern me. And I'm also concerned about where women concentrate their women-owned businesses.

If the number of women-owned businesses increased 20%, but the dollar revenues over the same period increased only 15%, then the average sales and revenues per woman-owned firm had to decline. And it did.

In 2002, U.S. women-owned businesses earned an average of just $145,000 in sales and revenues a year. That’s 56% of the average earnings of 50%-50% male-female owned businesses and closer to 25 or 30% of what male-owned businesses make.

Five years earlier, in 1997, the average was $151,300 in sales and revenues a year per woman-owned business. That's a decline of $6,300 or 4.2% (not considering inflation) during a period when the SBA should have seen much more bang for its buck in terms of results for all of its investment in woman-owned business programs.

A High Number of Firms in Low-Revenue Sectors

Maybe we should take a closer look at the economic sectors that women-owned businesses choose. Perhaps women are entering businesses with a low likelihood of generating high returns. We focus, first, on the sectors that women choose: those with the highest share of women-owned businesses (10% or more of the total number).

Over 60% of women-owned businesses enter just 4 sectors of the economy, all of them low-revenue generating. In fact, these sectors earn only 35% of all the sales/revenues produced by women-owned businesses -- an average of $84,700 per firm, just 58.7% of the average of all women-owned businesses ($145.000 per firm).

One out of every 6 women-owned businesses (16.0%) is engaged in the “health care and social assistance” sector where they earn only $66,100 a year in sales and revenues. Almost 60% of these women-owned businesses are involved in “social assistance”, earning barely $24,600 a year. Another large concentration within this group (39.2%) provides “ambulatory health care services” where they receive and average of $1,100 a year.

The second largest concentration of women-owned businesses is in the “other services (except public services)” sector, also involving 15.7% of the women-owned business market. An overwhelming share, 91%, are involved in “personal and laundry services”, earning just over $30,200 a year.

Another 14.6% share of women-owned businesses is in the “retail trade” sector, earning an average of $158,000 in sales and revenue per firm. Almost half (47.9%) are to be found in the “non-store retail” category earning barely $30,500 in sales and revenues a year.

“Professional, scientific and technical services” represent 14.4% of women-owned business firms, earning an average of $84,800 a year. The “other professional services” sub-category represents almost 30% of this total where the women-owned businesses earn only $44,400 a year.

In translation, the common businesses for women-owned businesses include care-giving, nursing and child care services, hair and nail care salons, laundry and dry cleaning establishments, handicraft and personal items sales. All of them are low revenue-generating businesses.

High Revenue Sectors Have Few Women-Owned Businesses

The highest revenue-earning sector for women-owned businesses is the “wholesale trade” sector where they earn an annual average of $1.7 million per firm. But only 1.9% of women-owned businesses operate in this sector. “Durable goods merchant wholesalers” represent 52.5% of this sector, earning an average of $973,000 a year.

A second high revenue-generation sector, where women’s businesses do relatively well, is the “management of companies and enterprises”, with the average sales/revenue per firm is $812,800. But, fewer than 0.1% of women-owned businesses enter this sector.

Women-owned businesses in the "construction" sector represent only 3.1% of the total. They are dominantly (76%) “specialty trade contractors” earning $248,000 in sales/revenues a year.

Let's consider the newest NAICS sub-category, "information" -– a field in which women represent about the same market share as men when measured as users or customers. Barely 1.2% of women-owned businesses fall within this sector. Overall, those women-owned firms earn an average of $275,000 -– almost twice the average sales/revenues of women-owned business. However, almost 40% of these innovative businesses are in the traditional publishing industry -- not the Internet services sector.

Clearly, some progress has happened. Is it sufficient?

Barely 1.8% of women-owned businesses (117,069 firms) earn $1 million or more a year. And only 6.2% of those (7,240 firms) employ 100 or more persons. Only 14.1% of women-owned firms even have employees, but those that do earn an average of $877,100 sales/revenues a year -- 6 times the earnings of their non-employee peers. In fact, 85.5% of all the revenue made by all women-owned businesses was earned by the 1 in 7 women-owned businesses which do have employees.

Are women who are entering the business world even aware of these average sales/revenue figures? Are women-owned businesses aware of how the sectors which they select will determine their revenue potentials? Do the average sales figures represent women who "have to work” or do the women have the opportunity to choose to work and select the sectors that will generate the greatest earnings?

Do women-owned businesses realized that, to achieve performance results better than these historic averages, women-owned businesses must differentiate their products/services from the very large aggregations of women-owned businesses also in those dominant sectors?

Do women-owned business appreciate the opportunities that exist for them to find their unique niche and make their idea outstanding in the marketplace? Or are women-owned businesses just doing the same things they'd do in the house, but out here in the marketplace, hoping and wishing somehow to make ends meet?

See: 2002 Survey of Women Business Owners

2002 U.S. avg. sales and revenue women-owned businesses - $145,000/year = 100%

High concentrations of women-owned businesses, but low average revenue

16.0% Healthcare and social assistance - 45.6% of the average
   60.0% - Social assistance - 17.0%
   39.2% - Ambulatory care - 0.8%

15.7% Other services - 24.6%
   91.0% - Personal and laundry services - 20.8%

14.6% Retail trade - 109.0%
   47.9% - Non-store retail - 21.0%

14.4% Prof., sci, tech. - 58.5%
   30.0% - Other prof. services - 30.6%

Low concentrations of women-owned businesses in high revenue sectors

3.1% Construction - 233.8%
   75.7% - Specialty trade contractors - 171.0%

1.9% Wholesale trade - 1197.3%
   52.5% - Durable goods merchant wholesalers - 670.9%

1.2% Information - 189.6%
   38.1%% - Publishing (except Internet) - 171.6%

<0.1% Management - 560.6%

Tuesday, January 10, 2006

Where Does L.A. Fit?

If Los Angeles area businesses have only 7.77% of their board seats held by women (according to a recent survey by the non-profit, women's membership organization, NAWBO-LA), what does that mean? Is it good? Is it bad? How do we know?

In order to measure LA area business performance and set attainable goals, we need to know how our the public companies in our community stack up in comparison with other states or urban areas.

© 2005 by Champion Boards. All rights reserved.

Los Angeles' performance is indicated by the red bar in the chart above, to the far right -- just a little better than the top Georgia businesses in terms of women as a share of board seat holders. Not a good performance.

  • The average size of the boards of directors of L.A. area top corporations is 7.7 board members -- quite small.

  • The apparel industry has the highest share of women on boards: 15.5%, followed by health care at 14.7%, and insurance firms at 11.5%.

  • The Fortune 1000 firms listed in the survey averaged an 11.7% share of women on boards -- suggesting that if it had not been for the big firms, LA's women on boards profile would have been far, far worse. In fact, without these firms, LA's average drops to under 7%.

  • The construction/engineering professions averaged 10.5% -- ahead of the financial sector (9.2%) and real estate (8.8%) where women represent a large share of middle and upper management.

  • Technology firms have a poor women on board performance: communications - 0%, computers/peripherals/electronics - 3.8%, Internet - 3.0%, and software - 2.9% even though women represent a large share of consumer electronics decision makers.

    A Good Beginning, But . . .

    Yes, we know that women are under-represented on boards of public companies –- Catalyst has been telling us this for over a dozen years. In the past year, the number of women on public boards actually has declined further. Just this month, Georgia reported another drop in the share of women on their top public corporate boards.

    But WHY? First, because boards themselves are changing.

  • Boards are getting smaller in response to Sarbanes-Oxley expectations: CEOs are being told to limit their board roles, boards are instituting age and tenure limits, and shareholder activist groups are insisting on fewer interlocking directorships.

  • Mergers and acquisitions among area firms and firms leaving California for more business-friendly markets are cutting back on CA-based women on boards: Tenet, WellPoint, Flour, Knight-Ridder are just a few examples.

  • Boards at smaller firms (the Fortune 500-1000 firms) have fewer board members because corporations just starting to work with boards need to take small steps in those directions.

    But why are WOMEN not pursuing boards of director roles? In many cases, it's because women continue to believe too many myths about boards that simply are not true.

  • “Good ol’ boy network.” Does this explain why women have not responded to the tremendous growth in demand for independent directors, and the associated rise in director compensation, that has followed the increase in Sarbanes-Olxey requirements?

  • “Recruiters.” Do women know the facts about how boards, themselves, assess their director candidates’ performance, how they determine their needed skill sets, how they solicit candidates for board roles, and how boards of directors actually recruit new boardmembers?

  • “The non-profit board route.” Does working for free, volunteering, or soliciting charitable contributions really qualify one to perform adequately in a for-profit-oriented environment?

    And, when women on boards of directors -– especially women on the NOMINATING COMMITTEES of boards of directors -– actively pursue more women on THEIR boards of directors, then we will know we have begun to make real progress in this area.

    See: "Women Don't Make Climb to Top Rungs of Board Ladders" by Kate Berry, L.A. Business Journal, November 21-27, 2005
  • Thursday, January 5, 2006

    How to Leverage State-Based Data

    How can we more effectively use and leverage our state-based surveys of the share of women on boards of directors? Let's look at the example of Georgia's survey, released in November 2005 by the Board Directors Network Inc.

    Georgia reports they have 187 “top public companies” with 1,611 board seats (or an average of 8.6 board members per company). In 2005, women held 115 of those board seats (for a pretty dismal average woman’s share of 7.1%). Due to women holding multiple board seats, 103 different women actually held board seats. One woman held seats on 3 separate boards, and 10 women held seats on 2 boards.

    The situation for 2005 was worse than in 2004. In the more recent year, only 46% of Georgia top public companies (86 firms) had at least one woman on their boards -- 3% fewer than the previous year. Possible explanations are that some large firms merged into others and consolidated their boards; possibly women left boards due to the greater demands being placed on them by Sarbanes-Oxley responsibilities; or women with tenure at boards decided to retire. Clearly, we need to take a closer look at why change occurred.

    As of January 2006, Georgia’s 187 top public companies included 26 Fortune 1000 level firms and 161 lower level firms (a 14% to 86% split). It is that bottom tier performance that drags the overall women’s share down to a sub-par average. Typically, the very largest public firms tend to have larger boards of directors and also more women on boards than the smaller tier firms.

    Georgia reported 15 firms in the Fortune 500 rank and 11 firms in the Fortune 501-1000 rank. There were 31 women holding board seats out of a total of 300 available board seats or a women’s share of 10.3% among Georgia’s 26 firms on the Fortune 1000 list.

    In 2005, among the 15 firms at the top tier Fortune 500 level, Georgia had 23 women holding board seats out of a total of 187 board seats (a 12.3% women’s share). There were 13 firms with women on board and 2 with zero women on boards. These larger firms averaged 12.5 total board seats per firm, overall.

    At the next level, among the 11 firms at the second tier Fortune 501-1000 level, Georgia had 8 women holding board seats out of a total of 113 board seats (a 7.1% women’s share). At this level, 7 firms had women on boards while 4 firms had zero women on their board. This tier averaged 10.3 total board seats per firm, overall.

    If we take away from the grand total the numbers that we know are Fortune 1000 women on boards, we come up with 161 smaller public companies (187-26), with 1,311 board seats (1,611-300) of which 72 seats were held by women (103-31). This would mean that the smaller public firms averaged 8.1 total board seats per firm. Women held only a 5.5% share of seats on those smaller boards.

    What can women’s’ organizations consider as they “measure to manage” improvements in women on boards of directors?

    1. Recognize the difference between large firms and small firms: they have different average board sizes, and they also have a different available pool of talented, competent women available from which they can select board members.

    2. Don’t focus on the wrong goal: by focusing primarily on the number of firms with 1 or more women on boards versus ZERO women on boards, we are not targeting a meaningful goal. Most of the firms with ZERO women on boards are the smaller firms.

    Focus on getting the top firms, with the largest available pool of talented women executives, to INCREASE their number of women on their boards from among their talented executive and managerial ranks. It is harder to improve from having zero women; it is somewhat easier to progress from having at least one woman on board. It is dangerous to pursue the goal of “women tokens” (one woman on a board), as if that could ever be considered “enough”.

    3. Be consistent and informative in year-to-year comparisons. Be clear about the companies being measured. How are we defining and measuring them as “the top public companies” in the state? Are they the top Fortune or S&P 500 or the top 1000? Or are they all of the public companies in the state -– large and small?

    Clearly count and report the number of firms in the total group, the total number of board seats available, the average number of board seats per firm, the number of women holding board seats, and the actual number of women.

    4. Focus on target firms. Firms with 1 woman on board (“the Trojan horse”) represent a real opportunity to expand to two or three or more women on that board. Firms with women holding multiple board seats represent another opportunity to recruit other women to take over one or more seat, given the expanded demands facing women on boards.

    5. Recognize where leverage could have the greatest effect. Should women push harder on the corporations or should women be pushing other women to prepare for, and pursue, corporate board roles? Where can women’s organizations have the biggest bang for the buck?

    Focus on building the competencies of women to serve in leadership positions. Don’t dilute your efforts trying to embarrass companies or boards with low statistics. Focus on finding women of talent in executive ranks and “pushing them forward” to pursue board of director roles.

    6. Finally, why are women’s organizations “honoring” corporate boards of directors for small token numbers of women on boards? By awarding and recognizing corporate boards of directors for their so-called “achievements” at attaining 6% or 7% or even 10% or 14% shares of women on boards, women’s organizations are setting the bar way too low. We may think women’s organizations are “attracting more with honey than lemons”, but the end result is that we are not making progress. In fact, in the post-Sarbanes-Oxley environment, we are sliding backwards in some areas. If we continue using these historic techniques, we can look forward to another 50 years of the same results.

    When corporate boards have closer to 40% shares of women on their boards of directors, then it will be time to spend our good money recognizing the achievement of corporate boards. Until then, women are showing corporate boards how willing they are to “settle for less”. So, why should those boards work hard to achieve substantive progress?

    A better strategy would be to build better and stronger networks among women’s organizations, leverage our efforts more effectively, push competent women to the front, expect more, and not merely settle for the absolutely poor performance we’ve achieved to date.

    See the Georgia data at Board Directors Network Inc.: (November 2005)