Based on the Corporate Governance and Leadership Council on Business & Society Forum, with the participation of Prof. Viviane de Beaufort, ESSEC Business School, Prof. Karin Thorburn, Norwegian School of Economics, Ms. Noreen Doyle, Director, Credit Suisse, and Ms. Susan Lindenauer, Director, Women’s Legal Defense Funds.
In 1911, the French Academy of Sciences failed to elect Marie Curie to be a member by a margin of one vote, electing instead a little remembered man who was involved in wireless telegraphy. No wonder the first woman to win a Nobel Prize, and the only person to win Nobels in multiple sciences, observed that “the way of progress was neither swift nor easy.”
Gender diversity in the boardroom is a case in point. A century after Curie was overlooked by the French Academy of Sciences, the statistics on the number of women who have reached an executive board position make disappointing reading. Yet with so much research showing that organizational performance is improved when there is a more gender balance, it is difficult to understand why businesses haven’t been quicker to put this right.
Professor Karin Thorburn’s review of academic evidence on the voluntary appointments of female directors to European boards shows the progress made in Norway over the last decade – now boasting a 42% female board representation. While other European countries have set similar goals for the years ahead, progress remains slow. The absence of sanctions may explain the fact that Spain has only 11% female board directors, though it is Italy that will have to change gears if the country is to meet its quota by 2015 from the current level of only 6%.
More women are serving on more boards because of quotas and a greater focus on diversity
When Norway’s voluntary targets for female board representation were not met, the government specified quotas, informing the largest companies that if compliance was not reached by April 2008, the company would be dissolved. The result was full compliance. “We have seen little change without legal action”, Thornburn observes.
But does greater gender diversity on the board create value for companies or investors? Though Professor Thorburn identifies a number of studies that find a positive relationship between the percentage of female directors and firm performance, based on stock performance, ROE, sales growth and other indicators, she points out that it is impossible to make any inferences about causality. “Are profitable firms more likely to hire woman? Or do women prefer directorships in profitable firms? We face similar issues with studies that find a correlation between gender diversity and CSR or better management practices, and it is difficult to claim that adding women to the board will improve company performance.”
However, shareholders seem to value voluntary appointments of female directors more than appointments of male directors. A study of new outside director appointments in Australia from 2004 to 2006 showed that stock price reaction was significantly higher (approx. 2%) on the announcement of female directors, and similar results have been noted in Spain and Singapore.
Data also shows that greater gender diversity on US boards positively affects the monitoring function of the board, with better attendance records, and a higher likelihood of equity-based board compensation. Greater monitoring increases the value of firms with weak shareholder rights, though it reduces the value of firms with strong shareholder rights. The example set at the top then spills over from the board to top management. Firms with more women on the board have more female top executives, though the existing corporate culture may also serve to attract more women.
The composition of non-profit boards is very different from boards of for-profit companies
In the United States, non-profit boards tend to be much larger (often having 30 or so board members, to assist with the goal of fundraising), and women represent 43% of the directors on these boards. However, the representation of women is highest among non-profits with smaller budgets, but is much lower at non-profits that have budgets of more than $100 million.
So how does greater gender balance effect the decisions made by the board? When Norwegian quota firms were compared to similar non-quota firms elsewhere in Scandinavia, they were found to undertake fewer workforce reductions, and saw a relative increase in employment levels and labor costs that coincided with a relative decline in operating profitability. Critics would argue that adding more women on the board had damaged the bottom line, favoring altruism over profitability.
In the wake of the quota, many non-listed Norwegian firms – often small, profitable firms with concentrated ownership and few if any women on the board – changed their legal structure to avoid compliance. Did they feel that the quota destroyed value, or was it done to protect the male incumbents? It is hard to say, but overall it is difficult to conclude that the reform had any long-term valuation effects.
So should corporate board gender quotas be imposed? Because the evidence about the impact on a firm’s value is inconclusive, the board gender quota is a purely political and gender equality issue. In Norway for example, the quota was proposed by the Ministry for Children, Family and Equality. But without legal action, little will change. After all, in the UK a golf club membership is a four times better predictor of receiving a corporate board position than a top university education. Perhaps the question therefore is whether we want a society where men and women have equal influence and economic power? And for Professor Thorburn, there is only one answer to that question.