Gender diversity and stakeholder management are now top of the agenda for boards. Several measures have been taken over the years to increase the number of female directors. What, then, are the benefits of having more female directors on corporate boards?
Although it is very difficult to come to a clear-cut conclusion, studies tend to show that board gender diversity is associated with good financial performance. The assumption that heterogeneous groups foster better decision-making seems to apply to corporate boards.
But what is the impact of gender-diverse boards on the social and environmental performance of the firms they pilot? Past studies have not come to a clear consensus regarding this question.
Moreover, if board gender diversity is desirable, what is driving or impeding female participation on corporate boards around the world? We recently conducted two studies that shed new light on these questions.
Corporate social performance
We argue that the results of previous studies do not converge because two important factors have been overlooked.
First, corporate social performance is multidimensional. It covers several heterogeneous stakeholders. Employees, customers, vendors, the community and the environment put pressure on firms to satisfy their varied demands.
Second, not all stakeholders have the same power over a firm. Corporate social performance, which involves stakeholder management, can only be fully understood by considering the relative power of relevant stakeholders.
For instance, employees and customers are considered to be powerful stakeholders. Employees can go on strike, or be less efficient, and customers can boycott if they are dissatisfied. The impact of gender-diverse boards on corporate social performance can, therefore, only concern less powerful stakeholders, because this is the only area where the board has room to manoeuvre.
Foster better social performance
Board composition is key in influencing corporate outcomes. The variety of perspectives among directors tends to improve the quality of their decisions, especially when it comes to complex issues related to social and environmental matters.
Studies show that men’s and women’s social behaviours differ. Women are believed to be more socially skilled and concerned with personal relationships, while men tend to be ambitious, self-directed and aimed at personal development.
Women and men also have different modes of moral reasoning. Women are more likely to be care-oriented, maintain long-term relationships and respond to the needs of others, whereas men are more likely to adhere to values of justice such as promoting fairness, rights and obligations.
Consequently, gender-diverse boards tend to be more attentive to demands from their stakeholders. Responding to these demands and allocating firm resources are accomplished through the process of stakeholder management. It is known that the relative power of stakeholders plays an important role in this process.
Historically, many demands from employees and customers have been institutionalised as a result of the power they gained by forming coalitions such as labour unions and consumer associations.
As expected, based on a sample of 1,632 firm-year observations from Fortune 500 companies in the US, we found that gender-diverse boards significantly improve their social and environmental performance toward less powerful stakeholders, vendors, the community, and the environment. However, their decisions impact employees and customers only marginally.
In conclusion, to become better corporate citizens, firms would benefit from appointing more women on their boards. Decisions related to stakeholder demands often involve complex issues that need to be considered from different perspectives. Gender-diverse boards are better equipped to discuss these issues thoroughly and arrive at optimal decisions.
Beyond reasonable doubt, women are taking on an increasing share of leadership roles in the corporate world, but they are still under-represented to various degrees on corporate boards, which begs the question: what is driving or impeding this variation?
In a recent study, we examined the corporate boards of 6,390 listed companies from 30 countries. We found that three components of emancipative forces—namely, action resources, emancipative values, and civic entitlements—are needed to foster women’s emancipation in the business context. As these three components of emancipative forces grow in a country, female board representation increases.
The possession of health, intellectual, and material resources expands the scope of actions that women can pursue. The role women play in society will greatly vary, depending on how many of these action resources they can access.
Traditional societies tend to maintain a gap between the action resources available to men and to women. In these societies, women are often confined to caring for their family and home and have only limited access to education and employment.
In modern societies, action resources are more abundant and tend to be distributed uniformly between men and women. Women are better educated and able to enter the job market in larger proportions. Similar to men, women embrace professional careers in disciplines such as law, science, architecture and medicine.
Pursuing education and participating in alumni networks also allow women to build ties and gain access to networks that will open the doors to corporate boardrooms for them.
However, even when women control large stocks of action resources, if they control relatively less than men, they are disadvantaged in obtaining board seats. Women need as many action resources as men to reach the highest positions in the corporate hierarchy, including board representation.
Men’s mindset is key to female board participation. The availability of action resources for women motivates women to become emancipated. Emancipative values change traditional gender stereotypes and socially shared expectations.
However, if women only internalise these values, men will remain resistant. Traditionally, men have had more decision-making power over who will move up the corporate ladder. It is, therefore, of utmost importance that not only women expect to be appointed as corporate directors, but that men also expect it.
Through the attribution of social, economic, and political rights to women, civic entitlements enforce the equality of men and women before the law. Women’s rights in politics have been extended in nearly all societies. In contrast, women’s economic rights are trailing behind. According to the World Bank, in 155 countries women’s economic opportunities are impeded by at least one law.
With civic entitlements in place, women are able to use their talents to pursue their business objectives. For instance, in recent years, gender quotas and comply-or-explain incentives have strongly driven higher levels of board gender diversity.
Benefits of gender-diverse boards
From a public policy perspective, emancipative forces can significantly reduce the barriers that frequently prevent women from reaching the upper echelons of the corporate world. Regulators should favour these emancipative forces to place more women in top management positions and as corporate directors.
From an economic rationale, growing evidence indicates that gender-diverse boards are better governed and economically more successful. Women have a positive influence on the quality of board tasks. They impact cohesion and are effective in monitoring management and fostering strategy development.
They also contribute to firms becoming better corporate citizens.
Professor Claude Francoeur is the Stephen A. Jarislowsky chair in governance at HEC Montréal.