How Women Work: Examining the role of Women on Board Leadership Positions and its Effect on Organizational Productivity

Shethepeople

I. Introduction

This paper addresses the question how do women work out in comparison to their male counterparts on boards? What impact do women have on cultural change and governance in firms in comparison to their male counterparts? It highlights culture change theories and arguments for the wider adoption of board gender inclusion policies.

Many governments’ reforms are geared towards changing the cultural attitudes towards women. They seek to reduce structural barriers at work in a bid to include women in leadership positions. In the African continent, several countries (e.g., Burundi, Liberia, Rwanda, Malawi, Sierra Leone, and Zambia) form a small circle of states working hard to enhance board effectiveness (Nyeck, 2015). In Europe, Swedish politicians have threatened to make gender diversity a legal requirement to ensure that companies reserve 25 percent of corporate board seats voluntarily for women directors. The situation for gender diversity on boards is changing. Gender awareness and globalization of inclusive attitudes continue to spread across the globe as pressure mounts to choose women to serve on and head firms’ boards.

Table 1. Fortune 100 board seats by gender and minority 2014–2018

Statistics show that, in 2007, 14.8 percent of corporate board seats on Fortune 500 board seats in the US were occupied by women (Catalyst, 2007). This percentage does not differ from other nations’ counterparts in Australia, Canada, Japan and Europe (8.7, 10.6, 0.4, and 8.0 percent respectively) have roles at the director level (Equal Opportunity for Women in Workplace Agency; EOWA, 2006). In recent years there has been laudable growth. According to a 2016 report, the number of women board members had doubled from [when/]. In 2016, women and minorities occupied about 31 percent of seats in Fortune 500 companies. African countries are also part of the trend. For example, in 2014, Nigerian women had 20 percent representation on corporate boards (Wimbiz, 2013).

Fig. 1 European Institute for Gender Equality

Returning to the European discussion, Swedish leaders had threatened to make gender diversity a legal requirement to ensure that companies reserved 25 percent of board seats for women directors. However, arguing for the need to have gender quotas is not without controversy, even in what is considered progressive nations. Norway, for example, introduced gender quotas for boards of directors in 2005. France, Germany, Italy followed soon afterwards. Some opponents argue that promoting gender quotas increases the chances of getting unqualified board members. They may perform at a lower level and this could result in costly decisions for firms they serve (Holzer and Neumark, 2000).

We draw our analysis from different firms in the US, Italy, Norway and China. We show data from relevant reports that point towards a positive impact of women leading boards. This provides a basis for a strong argument that women are a strong resource that leads to a number of resources that directors bring to boards: expertise, different views, ties to other organisations and legitimacy. This could help improve the quality of board decisions that boost the legitimacy of firm practices (Adams and Ferreira, 2009). There are strong indications of this to the affirmative. Empirical evidence shows prove that female executives display better discipline in taking corporate decisions (Huang and Kisgen, 2013). For instance, women are believed to have more positive behavioral attitudes towards work and tend to behave differently than men when it comes to their attendance behavior (Adams, 2009).

The Norwegian experience is the best example of measuring the effects of gender diversity policy on board organizations. In late 2003, Norway approved a law that boards of companies listed on the stock market must have 40 percent representation of both genders. Research has shown that the Norwegian law has been effective at increasing the number of women on boards to the stipulated 40 percent benchmark. This has not eliminated gender gaps overall. A study by Ahern and Dittmar (2012) posits that the rise in women on boards in Norway saw a significant cost impact on firms since it was not gradual assimilation.

The impact of board gender diversity on corporate decisions depends on firms’ governance quality. It is important to point out also that gender diversity can be detrimental to firm value if the specific new board member does not have the relevant skills needed for the specific board position (Gul et al., 2011).

II. Theories Related to Board Gender Diversity

Corporate Social Responsibility (CSR) can be positively linked to gender diversity via a greater willingness to appoint women board leaders (a demand-side) or through increased availability of women candidates equipped for board positions (supply-side).

On the supply side, firms with a CSR agenda are likely to attract more women directors (Turban and Greening, 1997). For example, in 2013–2014, Coca-Cola Enterprises presented as part of their CSR report the need for greater representation of women in top positions. Social Identity theory stipulates that individuals define who they are based on their group membership.

Despite the need for gender diversity in boardrooms and the policy debates surrounding this topic, very little research links diversity to corporate governance (Fields and Keys, 2003). Method to measure female impacts in their respective positions might include monitoring-related tasks, from auditing governance, governance characteristics and organization choices. While in some cases, analyzing stock performance may offer an avenue of useful research.

Board Gender Metrics & Characteristics

Many studies have used the percent of women directors on board as a yardstick to measure gender diversity (Adams and Ferreira, 2009). Other studies have used the number of women directors on boards to measure a critical mass needs reached before attributing success to the influence of women directors (Simpson et al., 2010).

“To accurately measure the influence of women in boardroom representation on firm risk, we need to take into account the influence of unobserved heterogeneity and past realizations of risk on the choice of director gender and current risk” (Vathunyoo, p31).

He stresses the importance of holding other director characteristics constant in the analysis. According to him “female directors are also more likely to sit on monitoring- related committees than male directors” (p, 292). A data assessment summary in the US showed a pattern in which firms who have only one female director do not experience any change in their growth (Adams, 2009). The data goes on to show that:

Fig. 2 Gender Diversity Assessment

“In years in which firms have women on their boards, firms are larger, have more business segments, have worse performance in terms of Tobin’s q but have better performance in terms of return on assets (ROA), have lower volatility, and have larger boards than firms without female directors”(p295).

An explanation for not seeing the effect of gender diversity on firm risk could be that the proportion of female directors on their male counterparts is not an appropriate method for identifying gender diversity.

It is important to note that although there is no accepted method to link gender diversity in boards to equity risk, gender difference increases the opportunity to act differently even though they don’t reflect on a firm’s stock volatility.

Fig. 2, pulled from Harvard School Forum on Corporate Governance shows an ESG measurement metrics that help to understand the impact of adding more women to boards. The metrics looks and the diversity and non-diversity of boards in the current S&P Fortune 500 companies over a one to five years period.

Fig. 3 Gender Diversity Correlation with Diversity

III. Comparing Implications

In the statistical data presented in Fig. 3 on the impact of women in firms, the results suggest that female directors heading boards have a significant and positive impact on firm performance.

An analysis carried out on Italian listed companies on the Milan Stock Exchange in 2007–2014, showed that specific gender representation triggers a process of a better selection of entire boards. An investigation into the stock market revealed that the introduction of gender quotas is associated with better firm returns (Giulia et al., 2016). An example of this assumption can be demonstrated through the recent changes witnessed in Silicon Valley. A case study of Uber who recently tasked a black woman, considered a minority to change the face of the brand. Bozoma Saint John has proved that when organizations take efforts to implement supportive human resource practices they can and do influence relevant performance outcomes (productivity and profitability).

IV. Summary & Conclusion

Many firms in the US and around the world are under constant pressure to improve gender diversity in the boardroom. Despite the nuances that surround giving women positions on boards, there is a clear indication that firms witness positive changes when they are open to implementing gender quotas in their organizational structure. The sum of the positive results is seen from diverse boards, positive attendance, and management of resources, ROA. This implies that women in board positions work well and improve productivity.

Although Norway’s law may have had an adverse effect at first, the Italian quotas previously noted provides an example that this policy can work if carried out through a gradual election process. Research shows positive impacts, for example, that women are more active at monitoring committee meetings and that this impacts turnover. However, more research needs to take place on board gender diversity. It is not clear if women change their behaviors to suit these roles or if they behave differently than men. Some early research indicates that board gender composition is positively related to measures of board efficiency, effectiveness and productivity.

This paper highlighted culture change theories and arguments for the wider adoption of these board gender inclusion policies. It is a choice that boards decide and that risk influences the productivity and outcome these firms get. Ultimately, gender diversity on corporate boards may depend on the willingness to pursue just balance as opposed to purely economic considerations.

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Web links

https://corpgov.law.harvard.edu/2018/09/06/across-the-board-improvements-gender-diversity-and-esg-performance/

I am on a quest, to find my magic, and I’ll share my dreams here, as they come. Also, a Comms strategist, working in tech & policy spaces, to bring about change

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