boards / CEO / corporate governance / director / non-profit / state agency / state-owned enterprise / women

Corporate Boards and the impact of Women Directors

“Only 17% of directors are women in Irish companies”[1]

“One in three women directors in Ireland say a glass ceiling exists in Irish business”[2]

On International Women’s Day (March 8th) numbers like these grab headlines and prompt urgent discussion, but do not answer the question, does board level gender diversity make a difference.

The advantages of women directors are increased independence as they are not part of “the old boys network” and they may have a better understanding of consumers as women make the majority of consumer purchases (Brennan & McCafferty 1997). Empirical research on for-profit listed firms indicates that women directors appear to have a positive impact on governance and performance (Adams & Ferreira 2009; Terjesen et al. 2009). There is evidence that women have a higher level of qualification, board attendance and engagement which may explain the higher organisation performance but it is difficult to separate the potential contributing factors (Terjesen et al. 2009; Elstad & Ladegard 2012).

Despite this evidence of a positive impact of women on firm performance,  other empirical research and a review of empirical literature has found that the relationship between board diversity and financial performance has not been convincingly established (Erhardt et al. 2003; Carter et al. 2010).  Other factors may impact diversity, for example, larger board size correlated with greater diversity in US and Australian studies (Chaganti et al. 1985; Kang et al. 2007) and industry type was associated with diversity (McCormick Hyland & Marcellino 2002; Kang et al. 2007). More than tokenism may also be necessary to secure the benefits of women directors, with one study showing that it required 3 women directors to bring measurable improvements in firm innovation (Torchia et al 2011).

Non-profits

Diversity may be more important for non-profits to confirm their legitimacy and attract funding, a conclusion by researchers who observed that diversity increased over time in non-profits dependant on state funding in the U.S. (Abzug & Galaskiewicz 2001). Women do appear to spend more time on board activities (O’Regan & Oster 2005).    Empirical research has indicated the following positive associations with higher gender diversity on a non-profit board:  the implementation of accountability measures (Ostrower 2007; Ostrower 2014), technical efficiency, lowering operating costs (Reddy et al. 2013), financial management and return on assets (Ward & Forker 2015),  organisation performance (Hartarska & Nadolnyak 2012), fulfilment of organisational mission (Siciliano 1996), governance practices (Buse et al. 2016), board dynamics, board and organisation performance  (Bradshaw et al. 1996; Siciliano 1996), fundraising, planning, community relations and educating the public about the organisation (Ostrower 2007)  However, emphasising gender diversity reduced ethnic diversity, indicating that they may be trade-offs (Ostrower 2007). Women are also less likely to serve on boards of  large non-profit organisations (Ostrower & Stone 2006; Ostrower 2007). Recruitment criteria focussed on financial skills, the health sector and larger urban areas were less likely to have a high proportion of women directors (Ostrower 2007).  However, certain factors did correlate with a higher percentage of women directors, such as the majority of clients being women, term limits, willingness to give time, local organisational focus, knowledge of organisation mission, cultural or educational mission focus  (Ostrower 2007).    Diversity in specific roles may be more impactful, for example, board gender diversity had no impact, but women CEOs or Chairs did result in significant reductions in negative social costs without impacting financial management (Ellwood & Garcia-Lacalle 2015).

Globally there are indicators of homogeneity in non-profit boards with a dominance of  white, older, professional males and a correlation between CEO demographics and board demographics, (Ostrower & Stone 2009; Renz & Andersson 2013; Ostrower 2014).  This homogeneity may reflect the difficulty of recruitment to these high-commitment and usually non-remunerated roles.  In a survey of the top 100 UK charities, there was very little discussion of diversity issues in the annual reports, with many also not disclosing the gender of board members, and only initials and surnames supplied (Grant Thornton 2013).  A key issue is the limited understanding of the barriers to recruitment of board members to non-profits and following from that, how to target a more diverse pool of candidates and effectively manage them to leverage the benefits of diversity (Ostrower 2014).

State Boards

There are very limited studies on women directors on state boards with the main research focused on the public sector generally and not board specific (Connell 2006; Mastracci & Bowman 2013; Sabharwal 2015). As with for-profit, diversity is increasingly a focus of board appointments to state boards and the OECD recommends consideration for board diversity in board appointment procedures (OECD 2015). Many countries have mandatory gender requirements for the boards of state-owned companies, usually in the range of 30 percent to 50 percent female participation (OECD 2013). However, it is more an aspiration than a reality with boards continuing to be dominated by “elite volunteers” who are usually  white-middle aged, well-educated males (Greer & Hoggett 2000; Flinders et al. 2011; van Thiel 2015).  In Ireland, a minimum  of 40% representation of both men and  women on all state boards was set in 1993 and by  2013 the representation of women was  36%, however, there were still significant under-representation of both genders on some boards (Department of Justice and Equality 2014).   There is some evidence that women are being encouraged to apply for Irish SOE boards, however, there is room to improve as only 33% of the 87appointment adverts specifically encouraged women applicants.[3]

 

In summary, board heterogeneity may influence board policies, activities and the organisation but the direction and intensity of the effects are not clear.  The importance of diversity in improving board effectiveness and performance is now widely recognised with a balanced approach to board composition recommended, but the proportion of women and minorities on boards remains small with a  trend towards increasing numbers (Petrovic 2008; Mallin 2010).  Companies should be wary of tokenism as it will not deliver the benefits of diversity. For individual women, a lack of board experience, skills and confidence can be barriers to  becoming directors[2]. These issues could be addressed by building experience through non-profit service and research indicates a focus on volunteering for non-profit boards with a local, smaller and a cultural/education mission may be a step to bridging the board room glass ceiling.

 

Abzug, R. & Galaskiewicz, J., 2001. Nonprofit Boards: Crucibles of Expertise or Symbols of Local Identities? Nonprofit and Voluntary Sector Quarterly, 30(1), pp.51–73.

Adams, R.B. & Ferreira, D., 2009. Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), pp.291–309.

Bradshaw, P., Murray, V. & Wolpin, J., 1996. Women on boards of nonprofits: What difference do they make? Nonprofit Management and Leadership, 6(3), pp.241–254.

Brennan, N. & McCafferty, J., 1997. Corporate Governance Practices in Irish Companies. Irish Journal of Management, 18(1), pp.116–135.

Buse, K., Sessler, R. & Bilimoria, D., 2016. The Influence of Board Diversity , Board Diversity Policies and Practices , and Board Inclusion Behaviors on Nonprofit Governance Practices. Journal of Business Ethics, 133(1), pp.179–191.

Carter, D.A. et al., 2010. The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance. Corporate Governance: An International Review, 18(5), pp.396–414.

Chaganti, R.S., Mahajan, V. & Sharma, S., 1985. Corporate Board Size, Composition And Corporate Failures In Retailing Industry. Journal of Management Studies, 22(4), pp.400–417.

Connell, R., 2006. Glass Ceilings or Gendered Institutions? Mapping the Gender Regimes of Public Sector Worksites. Public Administration Review, 66(6), pp.837–849.

Department of Justice and Equality, 2014. Government approves new measures to promote gender balance on State Boards, Dublin, Ireland.

Ellwood, S. & Garcia-Lacalle, J., 2015. The Influence of Presence and Position of Women on the Boards of Directors : The Case of NHS Foundation Trusts. Journal of Business Ethics, 130(1), pp.69–84.

Elstad, B. & Ladegard, G., 2012. Women on corporate boards: Key influencers or tokens? Journal of Management and Governance, 16(4), pp.595–615.

Erhardt, N.L., Werbel, J.D. & Shrader, C.B., 2003. Board of Director Diversity and Firm Financial Performance. Corporate Governance, 11(2), pp.102–111.

Flinders, M., Matthews, F. & Eason, C., 2011. Are Public Bodies Still “Male, Pale and Stale”? Examining Diversity in UK Public Appointments 1997–2010. Politics, 31(3), pp.129–139.

Grant Thornton, 2013. Charity Governance Review 2013, London, UK.

Greer, A. & Hoggett, P., 2000. Contemporary governance and local public spending bodies. Public Administration, 78(3), pp.513–529.

Hartarska, V. & Nadolnyak, D., 2012. Board size and diversity as governance mechanisms in community development loan funds in the USA. Applied Economics, 44(33), pp.4313–4329.

Herman, R.D., 2007. Are Public Service Nonprofit Boards Meeting Their Responsibilities ? Public Document Discussed : Public Administration Review, 69(3), pp.387–390.

Kang, H., Cheng, M. & Gray, S.J., 2007. Corporate Governance and Board Composition: diversity and independence of Australian boards. Corporate Governance: An International Review, 15(2), pp.194–207.

Mallin, C.A., 2010. Corporate Governance Third Edit., New York: Oxford University Press Inc.

Mastracci, S. & Bowman, L., 2013. Public Agencies, Gendered Organizations: The future of gender studies in public management. http://dx.doi.org/10.1080/14719037.2013.867067.

McCormick Hyland, M. & Marcellino, P.A., 2002. Examining gender on corporate boards: a regional study. Corporate Governance: The international journal of business in society, 2(4), pp.24–31.

O’Regan, K. & Oster, S.., 2005. Does the Structure and Composition of the Board Matter? The Case of Nonprofit Organizations. Journal of Law, Economics, and Organization, 21(1), pp.205–227.

OECD, 2013. Board Composition: Constraints and Guidelines. In Corporate Governance Boards of Directors of State-Owned Enterprises An Overview of National Practices. OECD Publishing, pp. 47–60.

OECD, 2015. OECD Guidelines on Corporate Governance of State-owned Enterprises, Paris, France.

Ostrower, 2007. Nonprofit Governance in the United States Findings on Performance and Accountability from the First National Representative Study, Washington DC.

Ostrower, F., 2014. Boards as an Accountability Mechanism. University of Texas at Austin, (May), pp.1–26.

Ostrower, F. & Stone, M.M., 2006. Governance: Research Trends, Gaps, and Future Prospects. In W. Powell & R. Steinberg, eds. The nonprofit sector: A research handbook. New Haven, Conn.: Yale University Press, Parsons.

Ostrower, F. & Stone, M.M., 2009. Moving Governance Research Forward: A Contingency-Based Framework and Data Application. Nonprofit and Voluntary Sector Quarterly, 39(5), pp.901–924.

Petrovic, J., 2008. Unlocking the Role of a Board Director: A Review of the Literature. Management Decision, 46(9), pp.1373–1392.

Reddy, K., Locke, S. & Fauzi, F., 2013. Relevance of corporate governance practices in charitable organisations. International Journal of Managerial Finance, 9(2), pp.110–132.

Renz, D.O. & Andersson, F.O., 2013. Non-profit governance, a review of the field. In C. Cornforth & W. A. Brown, eds. Nonprofit Governance: Innovative Perspectives and Approaches. Routledge, p. 312.

Sabharwal, M., 2015. From Glass Ceiling to Glass Cliff: Women in Senior Executive Service. Journal of Public Administration Research and Theory, 25(2), pp.399–426.

Siciliano, J.I., 1996. The relationship of board member diversity to organizational performance. Journal of Business Ethics, 15(12), pp.1313–1320.

Terjesen, S., Sealy, R. & Singh, V., 2009. Women directors on corporate boards: A review and research agenda. Corporate Governance, 17(3), pp.320–337.

Torchia, M., Calabrò, A., & Huse, M. (2011). Women directors on corporate boards: From tokenism to critical mass. Journal of Business Ethics, 102(2), 299-317.

van Thiel, S., 2015. Boards of public sector organizations: a typology with Dutch illustrations. International Journal of Public Sector Management, 28(4/5), pp.322–334.

Ward, A.M. & Forker, J., 2015. Financial Management Effectiveness and Board Gender Diversity in Member-Governed, Community Financial Institutions. Journal of Business Ethics, pp.1–16.

[1] RTE (2017, March 8) Female managers in Ireland earn 16% less than male counterparts – study. Retrieved March 8, 2017 from https://www.rte.ie/news/

[2] RTE (2016, May 22) One third of female directors say glass ceiling still exists in Irish business. Retrieved March 8, 2017 from https://www.rte.ie/news/

[3] Appointments posted between 4 June 2015 to 6 March 2017 on Stateboards.ie. the new open appointment portal for State Boards vacancies.  Adverts could have included one or multiple vacancies. Terms searched were gender, women, and female.  These searches did not exclude non-director references and thus may be an overstatement.

Save

Save

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s